Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

DURBAN NAVIGATION COLLERIES BILL [Lords]

Read the Third time and passed, with Amendments.

GREATER LONDON COUNCIL (MONEY) BILL

Read the Third time and passed.

SAINT JAMES AND SAINT PAUL, PLUMSTEAD BILL [Lords]

Read the Third time and passed, without Amendment.

GREATER LONDON COUNCIL (VAUXHALL CROSS IMPROVEMENT) BILL [Lords]

GREAT NORTHERN LONDON CEMETERY COMPANY BILL [Lords]

NEWCASTLE UPON TYNE CORPORATION BILL [Lords]

Read a Second time and committed.

Oral Answers to Questions — COMMONWEALTH AFFAIRS

Zambia

Mr. Sandys: asked the Secretary of State for Commonwealth Affairs what information he has received from the British High Commissioner in Lusaka about the camps in Zambia which are being used as bases for the dispatch of armed terrorists into Rhodesia; and what protests have been made to the Zambian Government.

The Secretary of State of Common-wealth Affairs (Mr. George Thomson): I have nothing to add to the reply given

to the hon. Member for Chigwell (Mr. Biggs-Davison) on 30th January.

Mr. Sandys: That is a most inadequate reply. How much longer are the British Government going to tolerate the organised infiltration of murderers and saboteurs into a British territory of which they claim to be the legal Government? Why do not the Government warn the Zambian Government that unless this stops Britain will stop all further financial aid immediately?

Mr. Thomson: The British Government have made it quite clear to the Zambian Government that they deplore all terrorism and violence from whatever quarter they come. We feel this is not the right way to a solution for Rhodesia and to avoid many grave dangers in Southern Africa as a whole. We have made absolutely clear to the Zambian Government what our position is, but if the right hon. Gentleman wants to end guerilla activity of this kind he should use his influence with Mr. Smith to get him to end the rebellion.

Mr. Crawshaw: Is my right hon. Friend aware that the Africans never had any confidence in the ability of the Opposition to solve this problem and, because of the time we have taken, they have lost faith in our ability to solve it? Will he press on with every form of sanctions that is possible? Otherwise, he will have the blood bath which we on this side of the House have been predicting for the last two or three years.

Mr. Thomson: Yes, Sir. We believe the use of sanctions is the right way to bring peaceful pressures to produce a solution, but we always made it clear to Mr. Smith before I.D.I. that if he took that disastrous action one of the results would be an increase in violence on the part of African Nationalists who would no longer have a constitutional method of achieving political progress.

Mr. Wall: Will the right hon. Gentleman give an undertaking that this important matter will be discussed with President Kaunda when he visits this country?

Mr. Thomson: These kind of talks between Heads of Government are confidential, but I have no doubt that a whole range of problems relating to Southern Africa are bound to be discussed.

Anguilla

Mr. Marten: asked the Secretary of State for Commonwealth Affairs what arrangements have been made to represent the external affairs of the island of Anguilla at international organisations.

The Under-Secretary of State for Commonwealth Affairs (Mr. William Whitlock): Her Majesty's Government are responsible for the external affairs of the Associated State of St. Kitts/ Nevis/Anguilla, and this responsibility includes the island of Anguilla.

Mr. Marten: Does not the Minister agree that this island declared its independence over a year ago and has worked quite satisfactorily since then? Would the Government now recognise this fact and begin to open negotiations for constitutional talks to recognise the independence of Anguilla?

Mr. Whitlock: Anguilla is still a part of the Associated State of St. Kitts/ Nevis/Anguilla. As the hon. Member knows, an interim settlement of the dispute with the Associated State was reached some time ago designed to bring about friendly relations so that Anguilla may play its part within that Associated State.

Mr. Braine: In this context, will the Government have another look at the whole question of Associated States in regard to St. Kitts? Is it not embarrassing for Britain to be responsible for a situation where the judiciary of St. Kitts has condemned the regime there for its attitude over Anguilla? Are we not going to stand by the people of Anguilla?

Mr. Whitlock: Of course we shall stand by the people of Anguilla so far as it is within our constitutional position. The general picture of the settlement of the Associated States is an entirely different matter.

Hong Kong

Mr. Rankin: asked the Secretary of State for Commonwealth Affairs what consultations he plans to hold with the administration in Hong Kong with a view to modernising its existing political structure; and if he will make a statement.

Mr. Whitlock: None. It has already been stated in the House on several

occasions that, because of Hong Kong's special position, constitutional development towards self-government is not possible. I have nothing to add to that statement.

Mr. Rankin: Is my hon. Friend aware that that is a very disappointing statement? Does he not realise that Hong Kong's present political structure is based on a series of laws which were introduced to deal with a period of social upheaval very recently? Does he think that that is in keeping with the democratic views that we in this Parliament hold?

Mr. Whitlock: I can only repeat that there cannot be normal constitutional progress towards self-government, but the Hong Kong Government have been exploring the possibilities of developing, in the sphere of local government, measures which will enable the people of Hong Kong to participate to a greater extent in the conduct of the affairs of the Colony. There has been no great demand for that on the part of the people of the Colony themselves, who have not responded to a recent major exercise to get them to register as voters.

Mr. A. Royle: Is the Under-Secretary aware that his statement will be welcomed in Hong Kong? Will he bear in mind the possibility of appointing a Chinese elected representative on the urban district council as one of the nominated members of the Legislative Council?

Mr. Whitlock: That is something we could look at.

Nigeria (Supply of Arms)

Mr. Wingfield Digby: asked the Secretary of State for Commonwealth Affairs what requests he has received from the Nigerian Government for facilities for the supply of arms from private manufacturers in Great Britain.

Mr. George Thomson: None, Sir. There is nothing to stop the Nigerian Government or their agents from approaching private manufacturers in this country, but all exports of arms are, of course, subject to export licensing control.

Mr. Digby: Will the right hon. Gentleman say quite clearly what proportion of arms is going through official channels and what proportion through private


channels and how this compares with the proportion before hostilities began?

Mr. Thomson: I am not quite clear what the hon. Gentleman means by his question. We understand that about 15 per cent. of the arms requirements of the Federal Nigerian Government are coming from this country, but none is coming from official British governmental channels. Perhaps the hon. Gentleman is referring to the Crown Agents. No British aid funds are involved in these arms. In these circumstances, the Crown Agents act as agents for the Governments themselves. They are not British Crown agents; they are Crown Agents in the Commonwealth sense.

Dr. Gray: In view of the continuance of this genocidal civil war, will my right hon. Friend stop arms from being supplied, whether from private or public sources, to the Nigerian Government forthwith?

Mr. Thomson: A number of hon. Members have Questions down on the subject raised by my hon. Friend, and I would prefer to wait until they are reached.

Immigrants

Sir C. Osborne: asked the Secretary of State for Commonwealth Affairs why he will not seek the co-operation of all Commonwealth Governments for the assisted return to their native lands of all immigrants in Great Britain who desire such a return; and how many he estimates would return if suitable financial arrangements were made.

Mr. Whitlock: It is for individual Commonwealth countries to decide whether to repatriate their citizens in this country who wish to go home. I have no means of estimating how many would wish to take advantage of such an arrangement.

Sir C. Osborne: Is not the Undersecretary aware that the vast majority of the people of this country want to see further immigration stopped and all immigrants who wish to do so encouraged to go home? Is it not the duty of a democratic Government to rule according to the wish of the people?

Mr. Whitlock: I am aware that it is the wish of the hon. Gentleman to have

all immigration stopped, but I am not sure that it is the wish of the majority of people in this country.

Mr. Heffer: Does not my hon. Friend agree that there is no evidence to suggest that the overwhelming majority of people in this country wish immigration to stop? Does he not agree with me that the important thing for us to do is to go ahead with getting racial harmony and integration in Britain, rather than having these sorts of questions, which raise a whole hornet's nest and which are totally inimical to the attainment of racial equality?

Mr. Whitlock: I agree with my hon. Friend. We have control over the entry of Commonwealth citizens in a manner which is designed to ensure that we shall not outrun our capacity to absorb these people within our community and to ensure that, within the community, they enjoy the rights which they should have as men and women.

Sir C. Osborne: asked the Secretary of State for Commonwealth Affairs why he will not ask all Commonwealth Governments to reduce the flow of immigrants into Great Britain, in order to prevent a demand for their total exclusion until such time as the social problems created by those already here have been solved.

Mr. Whitlock: Her Majesty's Government already have powers under the Commonwealth Immigrants Acts to control the entry of Commonwealth citizens.

Sir C. Osborne: Since the Minister doubted the statement I made in my supplementary on the previous Question, may I ask him whether he and his Government will hold a by-election to see what the people feel about it? The Government will soon get to know the answer then.

Mr. Whitlock: That is a ridiculous suggestion.

Mr. Hugh Jenkins: Is my hon. Friend aware that the majority of immigrants are from Australian, Canadian and European sources? Will he inquire of the hon. Member for Louth (Sir C. Osborne) whether it is these immigrants that he is anxious to return?

Mr. Whitlock: I am not responsible for asking questions of the hon. Gentleman.

Sir A. V. Harvey: Is the Undersecretary aware that most reasonable people want to see a fair deal given to those immigrants who are already here and to consolidate their position, and that what the people are concerned about is the tremendous number of dependants who will come in in the years ahead? They must be limited if those already here are to get a square deal.

Mr. Whitlock: I would not wish to control the entry of immigrants into this country in the inhuman way which the hon. Gentleman seems to envisage.

Nigeria

Mr. Winnick: asked the Secretary of State for Commonwealth Affairs if he will make a statement on the progress of the Nigerian peace talks.

Mr. Leadbitter: asked the Secretary of State for Commonwealth Affairs what discussions he has had with the Federal authorities regarding supplies of food and medical provisions to the victims of the Nigerian civil war.

Mr. Judd: asked the Secretary of State for Commonwealth Affairs what action the Government has taken, following his reconsideration of the matter, to achieve an international embargo on the supply of arms to all combatants in the Nigerian Civil War.

Mr. Barnes: asked the Secretary of State for Commonwealth Affairs what representations he has made to the Federal Government of Nigeria regarding the safe passage of food and medical supplies direct into Biafra.

Mr. Dempsey: asked the Secretary of State for Commonwealth Affairs if he will now take steps to send urgently needed medical supplies to the people of Biafra, with a view to relieving pain; and if he will make a statement.

Mr. Frank Allaun: asked the Secretary of Stae for Commonwealth Affairs what further action he is taking, following Her Majesty's Government's reconsideration of the matter, to prevent the sale of arms to Nigeria from the nations concerned; and what further proposals he has put forward to promote a ceasefire in that country.

Mr. Henig: asked the Secretary of State for Commonwealth Affairs what further initiatives he intends to take with a view to bringing about peace in Nigeria following the Minister of State's visit to Lagos.

Mr. Tilney: asked the Secretary of State for Commonwealth Affairs what further developments there have ben in discussions with the Government of Nigeria over ending the civil war; and what plans have been made to participate in a Commonwealth or international peace-keeping force.

Mr. George Thomson: With permission, I will answer these Questions at the end of Questions.

Commonwealth Prime Ministers' Meeting

Mr. Wall: asked the Secretary of State for Commonwealth Affairs if he will now make a statement about the proposed Commonwealth Prime Ministers' Conference.

Mr. George Thomson: No, Sir. I can as yet add nothing to the Answer which my right hon. Friend the Prime Minister gave on 20th June to a Question by my hon. Friend the Member for Ealing, North (Mr. Molloy).

Mr. Wall: When does the Secretary of State expect to be able to make an announcement on this subject? Is it the Government's desire to hold a Commonwealth Prime Ministers' Conference this year?

Mr. Thomson: It is our desire to see a Commonwealth Prime Ministers' Conference held as soon as there can be agreement about the time and the place. I have expressed some impatience about this. With 27 Heads of Government, all with busy schedules, it is difficult to get agreement on a time when as many of them as possible will be free. The Secretary-General of the Commonwealth, who is responsible for this, is pursuing his consultations with the greatest possible vigour.

Mr. Fisher: asked the Secretary of State for Commonwealth Affairs whether he will seek to arrange that the Kenya-Asian problem, so far as it involves


holders of British passports, will be discussed at the next Commonwealth Prime Ministers' Conference.

Mr. Whitlock: I refer the hon. Member to the answers given by my right hon. Friend the Prime Minister on 19th March to supplementary questions by my hon. Friend the Member for Norwood (Mr. John Fraser) and the hon. Member for Wycombe (Mr. John Hall).—[Vol. 761, c. 241–2.]

Mr. Fisher: I do not carry in my head what those answers were. Does not the Under-Secretary agree that this is not just a domestic matter, but a Commonwealth issue affecting many countries—India, Pakistan, Kenya, Uganda, Tanzania, Zambia, as well as Britain. Therefore, the Commonwealth Conference might well be the best possible forum for resolving this considerable problem.

Mr. Whitlock: My right hon. Friend the Prime Minister said that the agenda of the Commonwealth Prime Ministers' Conference will have to be agreed by all the Prime Ministers concerned. He went on to say that he would be surprised if the immigration problem did not come up for discussion at the Conference.

Rhodesia

Mr. Wall: asked the Secretary of State for Commonwealth Affairs if he is aware that African guerilla fighters are planning to infiltrate into Rhodesia; and what information he has on the assistance being given to them.

Mr. George Thomson: I am well aware of the risks of continued violence in Rhodesia so long as the present unconstitutional situation persists. As regards the information available to me, I have nothing to add to what my right hon. Friend the Prime Minister said in answer to Questions on 7th May.— [Vol. 764, c. 212–14.]

Mr. Wall: As Her Majesty's Government claim to rule Rhodesia, is it not their duty to prevent this incursion? Will the Secretary of State say categorically that no help, either direct or indirect, is being given or will be given to these guerrillas?

Mr. Thomson: I can say categorically that no help is being given to guerrillas. We stand opposed to violence, for the reasons I have just described to the right hon. Member for Streatham (Mr. Sandys).

Mr. Hugh Jenkins: Is it not my right hon. Friend's desire that the illegal regime in Rhodesia should be overthrown, and does he not welcome any help he can get to this end?

Mr. Thomson: It is our desire to see peaceful progress towards majority rule restored in Rhodesia. We attach the highest importance, not only in the interest of Rhodesia, but in the interest of so many African countries, to seeing that achieved by peaceful means and not by violent means.

Tonga (Treaty of Friendship)

Mr. Bryant Godman Irvine: asked the Secretary of State for Commonwealth Affairs if he will make a statement about constitutional progress in Tonga.

Mr. Whitlock: Under the new Treaty of Friendship, signed in Tonga on 30th May, and still to be ratified, Tonga has full responsibility for its own internal affairs, except for certain defence purposes. Save as provided for under the Treaty, the Constitution, and any constitutional change, is the responsibility of the Tonga Government.

Mr. Godman Irvine: Is the Undersecretary aware that after close on 90 years of treaties of friendship between these two countries this is a very satisfactory step forward? Is the hon. Gentleman further aware that if it should happen that Tonga applies to join the Commonwealth or the South Pacific Commission there will be a warm welcome for Tonga, not only in the House, but throughout the Commonwealth?

Ceylon (Foreign Exchange Entitlement Certificate Scheme)

Mr. Bryant Godman Irvine: asked the Secretary of State for Commonwealth Affairs what representations he has made to the Government of Ceylon with regard to the Foreign Exchange Entitlement Certificate Scheme announced under a Gazette Notification of 5th May, 1968; and if he will make a statement.

Mr. Whitlock: We have been much concerned at the possible adverse effect on British interests of the Foreign Exchange Entitlement Certificate Scheme introduced by the Government of Ceylon in May, 1968. The Commonwealth Office and other Departments have been seeking to determine the likely effects of the scheme on British individuals and companies. Our High Commission has, for this purpose, been in touch with the Ceylon Government and with the Association of British Interests in Ceylon and the Commonwealth Office has held discussions with the Ceylon Association in London.
In order to clarify the precise working of the new scheme and to seek suitable alleviation, we have asked for, and the Ceylon Government have agreed, to hold talks at a senior official level in Colombo. These talks began last week. I am not yet in a position to make a statement on the outcome.

Mr. Godman Irvine: Is the hon. Gentleman aware that most of the payments made under this scheme will in fact be dividends which are nearly two years in arrears? Is he further aware that, as a result of taxation plus the cost of the new service, only 45 rupees for every 100 which ought to be paid will, in fact, be received at this end? Does he not, therefore, feel that it is most urgent that these talks should be brought to a speedy conclusion?

Mr. Whitlock: All these difficulties for individuals and for firms are fully understood by the Commonwealth Office and by our people in Ceylon, and we are trying, as far as possible, to alleviate the consequences of the scheme to those people.

Kenya (High Commission Staff)

Mr. David Steel: asked the Secretary of State for Commonwealth Affairs how many complaints he has received about treatment of members of the public by the staff of the United Kingdom High Commission in Nairobi since the passing of the Commonwealth Immigrants Act, 1968; and what action he has taken.

Mr. Whitlock: We have received no specific complaints, but have seen a copy of a letter sent from Nairobi to my right hon. Friend the Home Secretary contain-

ing general allegations about the High Commission staff. The writer of the letter afterwards called on the Acting High Commissioner to discuss these matters.
All complaints have been investigated and only one has been substantiated. The need for courtesy and consideration in dealing with applications is, of course, fully understood by the staff concerned, and to ease the considerable pressure under which the staff were working, the staff in the sections concerned have been strengthened.

Mr. Steel: Is the hon. Gentleman aware that that Answer, particularly the last part, will be received with satisfaction? Is he aware that there will be great sympathy with the staff of the High Commission in Nairobi in the very difficult task it has to perform? Has any thought been given to the possible employment of Kenyan-Asians in the High Commission, who would then deal with their own people?

Mr. Whitlock: Local people are employed in the High Commission offices in Nairobi, and I am confident that the people who are there are competent in every way to carry out the task with which they are charged. I should like to take this opportunity to express my gratitude to the staff for the way in which they have carried out their task in extremely trying conditions.

Gibraltar

Mr. Fisher: asked the Secretary of State for Commonwealth Affairs if he will give details of the revised arrangements for the admission of citizens of Gibraltar to the United Kingdom in the context of the provisions of the Commonwealth Immigrants Act 1968.

Mr. Whitlock: My right hon. Friend the Commonwealth Secretary said in Gibraltar on 23rd May that he was satisfied that within the present number of vouchers available for the whole Commonwealth under the Commonwealth Immigrants Act, all the Gibraltarians who wanted to come to Britain would be able to do so. This is still the position. No Gibraltar voucher applications are outstanding and we are co-operating with the Gibraltar Government to ensure


that all applications are processed with the minimum delay.

Mr. Fisher: If Gibraltarians are now to be freely admitted, as seems to be the case—and I am absolutely delighted that this is so—does not this make it clear, as some of us claimed at the time, that the Kenyan-Asian Bill was a piece of colour legislation, pure and simple?

Mr. Whitlock: Not at all. One has to apply the Bill in the circumstances in which it applied in Kenya and not as it applied in Gibraltar.

Mr. Braine: Does the hon. Gentleman recall that, in the same speech, the Commonwealth Secretary promised that he would set up an expert body to look into labour questions, employment opportunities and so forth in Gibraltar? That was nearly six weeks ago. Has any progress been made in the setting up of that body?

Mr. Whitlock: Progress is being made, but this is an entirely different question.

Mr. Colin Jackson: asked the Secretary of State for Commonwealth Affairs what progress has been made concerning talks over the constitutional future of Gibraltar.

Mr. George Thomson: We are planning for the constitutional talks to open in Gibraltar under the Chairmanship of my noble Friend the Minister of State for Commonwealth Affairs on 16th July.

Mr. Jackson: I thank my right hon. Friend for that Answer. Can he give the House an assurance that these talks will be concerned not only with internal government within Gibraltar, but with the wider constitutional links with Britain which would, for example, include the question of Channel Island status?

Mr. Thomson: As the hon. Gentleman knows, Her Majesty's Government's attitude towards Channel Island status has been that this would present formidable difficulties for both Britain and Gibraltar, but I have repeatedly said that these talks will enable any ideas about future links to be put forward and discussed.

Mr. Tilney: Does not the Secretary of State agree that, as long as Gibraltarians can come into this country like Channel Islanders, that will more or less satisfy them?

Mr. Thomson: That is the importance which should be attached to the question of the right of access for Gibraltarians about which the hon. Member for Surbiton (Mr. Fisher) made such agreeable noises a few moments ago.

Mr. Albert Roberts: Is there any possibility of the Government's complying with the United Nations resolution, or is it just a case of accepting the rulings of the United Nations, as is the case with so many other countries, only when it suits our purpose?

Mr. Thomson: No, Sir. I had hoped that I had made that position absolutely clear to my hon. Friend in our recent debate. The United Nations resolution was non-mandatory; it was a recommendation. We voted against it to make it absolutely clear that we thought that it was a resolution which discredited the United Nations.

Sir D. Walker-Smith: Have the difficulties about Channel Island status, which the Government see, been formulated? Would the right hon. Gentleman present, by way of a White Paper or otherwise, the exact considerations, constitutional and otherwise, which he has in mind, so that those who may be disposed to take another view can reflect upon them and answer them if need be?

Mr. Thomson: I should not like to formulate them at this stage on the eve of the visit of my noble Friend Lord Shepherd to Gibraltar. The first thing to do is to allow the talks to begin.

India and Pakistan (Official Visits)

Mr. Colin Jackson: asked the Secretary of State for Commonwealth Affairs when he intends to pay official visits to India and Pakistan.

Mr. Thomson: At present no such visits are arranged.
Last year my right hon. Friend the Minister of Overseas Development paid an official visit to India and my right hon. Friend the present Secretary of State for Wales made official visits to both India and Pakistan. In addition, my right hon. Friend the President of the Board of Trade and my hon. Friends the Parliamentary Secretaries of the Commonwealth Office and the Ministry of Overseas Development visited Delhi in


February of this year for the second U.N.C.T.A.D. I naturally hope that, if agreeable to the Governments concerned, further visits can be arranged in the months to come.

Mr. Jackson: Would my right hon. Friend admit that, while relations between Wales and India are necessarily close, it would probably be more practicable for the Commonwealth Secretary to visit India and Pakistan at the earliest opportunity, bearing in mind the serious problems of South-East Asia, China, Vietnam and the future of Asia?

Mr. Thomson: Yes, Sir. The Secretary of State for Wales visited India as one of my deputies. My hon. Friend will be aware that we are approaching a merger of the Commonwealth Office and the Foreign Office, and I am sure that the first Secretary of State for the joint office will not overlook what my hon. Friend has said this afternoon.

India (Mr. W. Nash)

Mr. David Watkins: asked the Secretary of State for Commonwealth Affairs if he will make a statement on the efforts which he is making to have expedited the proceedings against Mr. W. Nash of Burnopfield, County Durham, who has been held in custody in New Delhi for many months on charges of alleged smuggling.

Mr. Whitlock: Our High Commissioner in New Delhi has made appropriate representations to the Indian authorities about the time Mr. Nash has already been in custody, and I hope that the proceedings against him will now be expedited.

Mr. Watkins: I thank my right hon. Friend for the efforts which he and the High Commissioner have made on behalf of my constituent. However, is it not disgraceful that anyone should be held in custody for so long without any charges being proved against him?

Mr. Whitlock: Mr. Nash was arrested on 15th December and could not produce bail. The Indian Customs authorities completed their inquiries on 12th March when a complaint was alleged against him in court. I understand that there are 24 witnesses in this case, of whom only eight have so far appeared in court. Progress is slow, but the conduct of the case is a matter for the Indian courts on which I cannot comment. My

hon. Friend will be pleased to know that Mr. Nash is in good health, is being well treated, and is regularly visited in gaol by the staff of our High Commission.

Mr. Dodds-Parker: As the Indian authorities have a very good record for expedition in such cases, can the hon. Gentleman say why there has been this delay in this case?

Mr. Whitlock: Presumably the delay has been because of the need of the Indian Customs authorities to complete their inquiries. They were not completed until 12th March. Since then, there have been a number of hearings of the court and a variety of witnesses have been examined.

Falkland Islands

Mr. Chichester-Clark: asked the Secretary of State for Commonwealth Affairs whether he will now arrange to visit the Falkland Islands.

Mr. George Thomson: I know that a visit to the Falkland Islands would be welcome and we are examining the possibility of a visit by a Minister later in the year.

Mr. Chichester-Clark: Has not someone, either there or here, to make it quite clear that British sovereignty over the Falkland Islands is not negotiable?

Mr. Thomson: The position with regard to the Falkland Islands has been made absolutely clear, and it is that the interests of the inhabitants of the Falkland Islands are paramount, and it is their wishes that will be taken into account in any future decision.

Mr. Chichester-Clark: asked the Secretary of State for Commonwealth Affairs what recent talks he has had with political leaders in the Falkland Islands.

Mr. Braine: asked the Secretary of State for Commonwealth Affairs what consultations he now proposes with the Government of the Falkland Islands on the subject of their future constitutional status.

Mr. George Thomson: As my right hon. Friend the Foreign Secretary said on 26th March, there have been consultations with the Governor, who has been authorised to keep his Executive Council


informed in confidence. This will continue.
I had talks with the Governor of the Falkland Islands in London in February, and my right hon. Friend the Minister of State had talks with a leading member of the Falkland Islands Executive Council in London in March.

Mr. Chichester-Clark: I hope that that means that sovereignty is not negotiable. Have political leaders been told why the Government are appearing to waste time and are causing what appears to be unnecessary offence to other nations in this case, and in the cases of British Honduras and Gibraltar?

Mr. Thomson: The other points are matters for other Questions but in the case of the Falkland Islands, as the hon. Member knows, there is first of all the United Nations resolution on the subject, with which we have been seeking to comply. It is in the general interests of the Falkland Islands, as well as of our own foreign relations, that the Falkland Islands should seek neighbourly relations with the Argentine on the neighbouring Latin-American continent. There is no question of the wishes of the Falkland Islanders with regard to the future being over-ridden.

Mr. Braine: Is the right hon. Gentleman aware that there is no doubt about the desirability of having good relations with the Argentine, but since, contrary to the wishes both of the islanders and a large number of people in the House and this country, secret negotiations with the Argentine over sovereignty are still continuing, we want to know at what stage the Government propose to tell the people of the Falkland Islands, as opposed to the Executive Council, which is bound to secrecy on this matter, concerning their future?

Mr. Thomson: Negotiations are going on. These kinds of negotiations are better conducted in confidence. It is the normal practice. Equally, the Governor and his Executive Council are being kept informed of the negotiations, in confidence. When these negotiations develop to a point at which there is something to report, that would be the time to bring in a much wider circle of people, but that stage has not yet been reached.

Sir Alec Douglas-Home: The right hon. Gentleman has used two sets of words. He said, first of all, in relation to sovereignty, that the wishes of the people in the Falkland Islands will be taken into account, and the second time he said that they would not be over-ridden. Will he confirm that it is the second interpretation which is the right one?

Mr. Thomson: It is the second one.

Oral Answers to Questions — COAL

Colliery Closures, North-West

Mr. Rose: asked the Minister of Power what communications he has received from the National Coal Board in respect of colliery closures in the North-West during the latter half of 1968.

The Parliamentary Secretary to the Ministry of Power (Mr. Reginald Free-son): I understand from the National Coal Board that it has informed the unions that Bradford and Thorney Bank pits are to close in 1968, and that the results of Ravenshead, Parsonage, Sutton Manor and Old Meadows pits are such that their future is in jeopardy.

Mr. Rose: Would my hon. Friend consult with the various authorities interested in the future of Bradford Colliery to see whether a change in the working arrangements can extend the life of the colliery? Would he take steps with his colleagues to see that, if the colliery is closed, priority to those made redundant is given in other forms of public enterprise?

Mr. Freeson: My hon. Friend will appreciate that negotiations as to the possible extension of the life of pits is a matter for the N.U.M. and the N.C.B. and their local representatives. As to alternative employment, while there is consultation and contact with regional authorities, the D.E.A. and other Departments, this is primarily a responsibility of those Departments, not the Ministry of Power.

Mr. Emery: Can the Minister give an assurance that it is not the intention of his Ministry to interfere in any way with the programme of pit closures agreed by the N.C.B.?

Mr. Freeson: We are kept closely in touch with all matters relating to the programme of pit closures and will continue to be kept in touch.

Bradford Colliery, Manchester

Mr. Rose: asked the Minister of Power what will be the additional transport costs of the alternative arrangements for supplying coal to Stuart Street power station, Bradford Gas Works and Richard Johnson and Nephew which at present receive direct supplies by conveyor belt following the closure of Bradford Colliery.

Mr. Freeson: As the question of alternative supplies of coal is a matter for the N.C.B. in consultation with its customers, I have asked the Chairman of the Board to write to my hon. Friend.

Mr. Rose: Can my hon. Friend say whether these factors were considered before the closure was announced by the N.C.B.?

Mr. Freeson: Yes, I can confirm that these are among the many factors taken into account when a decision is taken.

Bradford Colliery, Manchester

Mr. Ogden: asked the Minister of Power what consultations he had with the National Coal Board in advance of the announcement of the intention to close Bradford Colliery. Manchester, in September, 1968.

Mr. Freeson: The National Coal Board is responsible for colliery closures, and keep my right hon. Friend informed. This was done in the case of Bradford Colliery.

Mr. Ogden: Would my hon. Friend agree that there is a vast difference between being informed of a decision and being consulted about a decision before it is taken? Surely if it is anyone's business it is the business of the Ministry of Power?

Mr. Freeson: It has not been the practice in the past, nor is it the practice at the present time, for the Ministry of Power to involve itself in the detailed programming of colliery closures.

Mr. Sheldon: Although it is no desire of mine or my hon. Friends to interfere with the day-to-day working of the N.C.B. may I ask whether, in a matter as serious as this, my hon. Friend has

assured himself that the financial implications have been covered?

Mr. Freeson: All these implications are taken into account when the decision is made. The important thing is that, so far as possible, there should be close liaison between the N.C.B. and the various Government Departments concerned so that action can be taken where possible by other Departments to direct employment and industrial development into the areas concerned.

Sir G. Nabarro: Can the hon. Gentleman explain to the House why it is expected to vote the money consequent upon the policy of large-scale pit closures, while the Minister refuses to give us details of the displacement of labour and all the other operational details following the closure policy?

Mr. Freeson: If the hon. Gentleman and any other hon. Member wish to put down Questions asking for this information we will do our best to supply it. We have answered such Questions in the past.

Mr. Shinwell: Why does the Parliamentary Secretary always assume that the provisions of the coal nationalisation Act, for which he is responsible in this House, provide arbitrary powers allowing the N.C.B. to indulge in closures without full consultation, not only with the N.U.M. but with the Government, about the social consequences? Are we to assume that this is Government policy? If so, they ought to be made responsible.

Mr. Freeson: My right hon. Friend has misunderstood one of my previous replies. I said on two occasions that there is consultation between the N.C.B. and the Government Departments concerned. It is not just a matter for the Ministry of Power, as I pointed out.

Mr. Ogden: In view of the unsatisfactory nature of that reply, I beg to give notice that I shall seek to raise this matter on the Adjournment at the earliest possible opportunity.

Oral Answers to Questions — MINISTRY OF HEALTH

Prescription Charges 35.

Sir D. Renton: asked the Minister of Health whether he will include Wilson's disease among those which entitle people suffering from chronic ailments to exemption from payment of prescription charges.

The Minister of Health (Mr. Kenneth Robinson): No, Sir. I would refer the hon. Member to my reply on 30th April to my hon. Friend the Member for Wandsworth, Central (Dr. David Kerr) and other hon. Members.—[Vol. 763, c. 973–6.]

Sir D. Renton: Is the right hon. Gentle, man aware that this is a serious question about a tragic and chronic disease? Is he further aware that it is almost incurable? Will he bear in mind that its effect can be mitigated by regular treatment, by prescription? Would he see to it that this is an exemption?

Mr. Robinson: I have explained that the list of exemptions was the maximum upon which agreement could be reached with the medical profession. I agree with the right hon. and learned Gentleman in what he says about the disease, but I am told that it is, happily extremely rare, with less than 100 cases in the whole of the United Kingdom. I am also told that it does not require frequent prescriptions—about one a month is normal.

Dr. Winstanley: Would the right hon. Gentleman freely acknowledge that the Government are not exempting the chronic sick from these charges as they originally promised?

Mr. Robinson: The Government are exempting patients in the categories specified in the Order. As to the wider categories of patients who might be called chronic sick, I would refer the hon. Gentleman to the announcement I made about future arrangements.

Sir R. Cary: On a point of order. Might I ask the right hon. Gentleman what is Wilson's disease?

Mr. Robinson: It is also known as hepatolenticular degeneration. [Laughter.] It is not a laughing matter. It is a very serious disease, and it is due to, or associated with, a defect of copper metabolism in the body.

Mr. Pavitt: asked the Minister of Health if he will issue instructions to dispensing pharmacists that any prescription which gives the patient more than two ampoules of methedrine a day shall be referred to the doctor concerned for confirmation before being given out.

Mr. K. Robinson: The Advisory Committee on Drug Dependence has been considering the general question of central nervous system stimulant drugs since its first meeting, and methedrine in particular since February. I understand that the Committee has concluded that further restriction upon its availability is desirable and is now urgently considering the best way to achieve this. I will examine the suggestion made by my hon. Friend in the light of the Committee's advice.

Mr. Pavitt: Can my right hon. Friend say why it is that there has been such an increase in the production of methedrine, when only a few years ago there was only one firm making it, and there has been no increase in the disease for which this is available?

Mr. Robinson: My hon. Friend has another Question on the Order Paper about the firms manufacturing this. These are matters which we must consider in the light of the Committee's advice.

Mr. Maurice Macmillan: Would the right hon. Gentleman consider trying new methods of stopping an addict obtaining more than he needs from chemists, perhaps by applying more widely the methods which I understand are now being used in Birmingham?

Mr. Robinson: The hon. Gentleman may like to know that after consultations with leaders of the medical profession, my Chief Medical Officer recently wrote to all general practitioners and to doctors doing appropriate work in hospitals, about the very great care needed in prescribing amphetamines generally.

Oral Answers to Questions — LOCAL GOVERNMENT

Beaches (Oil Pollution)

Mr. Thorpe: asked the Minister of Housing and Local Government whether he is aware of the proposal of the Shell Oil Company to transfer oil from large to small tankers outside territorial waters; whether officials from his department will be present to witness the trial experiments with this technique; and what steps he is taking to ensure that this method of unloading does not increase the risk of oil pollution.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. Arthur Skeffington): My


right hon. Friend is concerned about any activity at sea which involves a risk, however remote, of beaches being polluted by oil. He has therefore kept himself informed about this proposal. Officials from the Department have not witnessed the trials, but professional officers of the Board of Trade have done so. I am advised that, provided the precautions prescribed in the company's operating procedure are strictly observed and provided the transfer takes place in suitable weather, the risk of pollution is slight. My right hon. Friend the President of the Board of Trade will keep developments under close scrutiny.

Mr. Thorpe: I thank the hon. Gentleman for his reply. Is he aware that councils with seaside resorts in their control are very worried about this matter? Can he say whether the trials will be witnessed? In view of the helpful response of the Ministry at the time of the "Torrey Canyon" disaster, will he undertake that the trials will be witnessed and that the Ministry will keep as closely in touch as possible with this development?

Mr. Skeffington: I am happy to give all the assurances asked for by the right hon. Gentleman. Expert Government witnesses will be at all the trials and any other manifestations. Furthermore, we propose to issue to all the authorities an up-to-date and revised technical manual in case they suffer pollution, which is quite unlikely. We are keeping abreast of modern developments. If, despite the procedures, there should be harmful consequences, grants will be sympathetically considered.

Oral Answers to Questions — NATIONAL FINANCE

Civil Service (Information Officers)

Mr. G. Campbell: asked the Chancellor of the Exchequer what action he is taking to reduce the number of public relations and publicity officials in, or attached to, the home Civil Service.

The Minister of State, Treasury (Mr. Dick Taverne): Information officers are subject to the same stringent controls as all other staff of the home Civil Service, and their numbers are kept to the minimum necessary to carry out their essential function.

Mr. Campbell: As the increase in the number of public relations officers has coincided with an unparalleled increase in the disenchantment and disgust of the public with the Government, will the hon. and learned Gentleman make this a priority in the plan to curb the size of the Civil Service?

Mr. Taverne: There is elaborate financial control. The cost of information staff is examined separately, and if one does want proper explanations from Departments, as the public does, it is reasonable that there should be information officers to provide them.

Oral Answers to Questions — OVERSEAS DEVELOPMENT

Swaziland

Mr. David Steel: asked the Minister of Overseas Development whether the conference to discuss the future finance of Swaziland will be held prior to the granting of independence on 6th September.

The Minister of Overseas Development (Mr. Reg Prentice): No, Sir. With the agreement of the Government of Swaziland, it is proposed to hold the conference in the autumn after independence✶ but officials of my Department are having preliminary talks in Swaziland this month.

Mr. Steel: Is this not an unusual step to take? In view of the isolated situation of Swaziland, surely financial arrangements should be known before independence is granted.

Mr. Prentice: This procedure has been followed in a number of recent cases. Aid this year to Swaziland will cover the immediate post-independence period, and talks on aid, which will take place in the autumn, will follow preparation of the development plan of the Swaziland Government for the period ahead.

NATIONAL EXPORT AGENCY

Ql. Mr. Whitaker: asked the Prime Minister whether he will co-ordinate the relevant work of the Board of Trade and the Foreign Office in order to establish a National Export Agency.

The Prime Minister (Mr. Harold Wilson): My hon. Friend will know of the Overseas Marketing Corporation the establishment of which was announced by my right hon. Friend the President of the Board of Trade on 2nd November last. If my hon. Friend has any other point in mind I would be happy to consider it.—[Vol. 753, c. 11–13.]

Mr. Whitaker: Would not a National Export Agency based directly on intelligence from commercial attaches throughout the world be invaluable for smaller British firms which cannot have exporting knowledge of every country?

The Prime Minister: This is why the Corporation, following the Denman Report, has been set up—to act as an overseas selling organisation for British goods with export potential whose manufacturers, for one reason or another, lack the knowledge or facilities needed. The reports from our overseas representatives are available to the organisation.

Sir C. Osborne: Does the Prime Minister not agree that our commercial attaches in most countries are doing a fine job in helping our exporters? Would not he further agree that what is needed is not a further agency like this but a reduction in direct taxation and the abolition of S.E.T. in order to give incentives to men to export?

The Prime Minister: The latter part of the hon. Gentleman's supplementary question raises wider considerations, and I remind him that we are discussing the Finance Bill this week. But I agree with his tribute to our representatives, both in foreign countries and in Commonwealth countries. Their work is very useful to our manufacturers. I think that the new Corporation will help many small potential exporters. I have also been very impressed, in my visits to various parts of the country recently, by what chambers of commerce and other private enterprise organisations are doing to help our smaller exporters.

DEVALUATION

Mr. Marten: asked the Prime Minister whether, in the light of the last quarter's balance of payments, he will now report progress on devaluation in another television broadcast to the nation.

The Prime Minister: I would refer the hon. Member to the Answers I gave to similar Questions on 5th March and 25th April, 1968.—[Vol. 760, c. 222–3; Vol. 763, c. 475–77.]

Mr. Marten: Since then much time has passed. In the present situation, with the balance of payments as it is, overseas debt mounting up, the unemployment trend, and two Cabinet resignations since devaluation, does not the nation in its anxiety deserve a massive explanation from the right hon. Gentleman on television?

The Prime Minister: I am not getting help from the hon. Gentleman who is so misleading in his presentation of facts and figures. I remind him that industrial production this April was five points higher than in April last year, that productivity is 5½ per cent. higher, and that our exports are up 15 per cent. by value and 7 per cent. by volume over the middle period of last year, representing an annual rate of 10 per cent. compared. with the average over the last ten years of a 3 per cent. increase.

Mr. Hugh D. Brown: Will my right hon. Friend take serious note of the point of view of hon. Members on this side who recognise that July is a sticky month in more ways than one—including Sunday's resignation? Will he accept that there would be tremendous support for him if he gave a state of the nation broadcast, because he still has many friends— [Interruption.]

Mr. Speaker: Order. Briefly, please.

Mr. Brown: I repeat that the Prime Minister still has many friends inside and outside this House. The country deserves an explanation of what is going on.

The Prime Minister: I think that at the proper time that will be appropriate.

Mr. Maudling: In the light of the figures given by the right hon. Gentleman, can he say whether the rise in prices since devaluation is yet enough to carry out the Government's policy of restraining demand, especially imports?

The Prime Minister: The full effects of the Budget on restraining demand have not yet been felt. The latest figures for retail sales were published this morning.


The House was given the figures for prices yesterday. They include the effects of the Budget, which it was known would have an effect on price levels. However, there is some evidence that food prices this year have not risen as much as many of us, including myself, would have expected at the time of devaluation.

Mr. Murray: Is the Prime Minister aware that the Conservative Party are willing to go to any lengths to discredit the Government, even if it means doing serious and permanent damage to the economy? I am sure that the public would welcome a broadcast on television giving some of the true facts to the nation.

The Prime Minister: It is probably more important that we should all concentrate on the measures which we have been taking, including the very important measures for strengthening Britain's industry, from which we are now getting new and spectacular evidence almost every week, not only in export orders but in other ways, showing the greater robust strength of British industries that were far too long neglected.

Mr. Peyton: Would not such a broadcast afford a melancholy example of the unpopular explaining the unacceptable to the unbelieving?

HOUSE OF LORDS REFORM (LEGISLATION)

Mr. St. John-Stevas: asked the Prime Minister whether he will make a further statement on Government intentions with regard to the reform of the Upper House.

The Prime Minister: I would refer the hon. Member to the statement I made to the House on 20th June and to the Answers I gave to Questions on 25th June—[Vol. 766, c. 1314–28; Vol. 767, c. 236–8.]

Mr. St. John-Stevas: Since the Prime Minister said then that legislation would be early, radical and comprehensive, would it be fair to interpret that as meaning that the Prime Minister does not know what to do and cannot make up his mind?

The Prime Minister: No. The hon. Member would be quite wrong to deduce that from it. The legislation will, in fact, be comprehensive, radical and early.

Mr. Maudling: Can the Prime Minister say whether the legislation will be available and on the Statute Book earlier than could have been done by inter-party agreement?

The Prime Minister: The right hon. Gentleman knows that it was the effect of his own Front Bench that made inter-party agreement impossible. Very reasonable progress was being made, but the Leader of the Opposition thought that he saw a chance of taking political advantage and bungled it.

Mr. Manuel: Is my right hon. Friend aware, and will he take note, that the Members of the other place are mutilating the Transport Bill as busily as they can? Will he see that the will of the people is carried out in order to get a public transport system for the country?

The Prime Minister: I do not think that it would be appropriate for me to comment on what is going on in another place during the passage of the Bill. We will see it in whatever form it emerges when it comes back to this House.

Dr. Winstanley: In considering the possibility of Members of the House of Lords being subject to some form of election, would the Prime Minister bear in mind that the method of election which is used to send Members here sends rather too many Members of certain parties and too few of others? Will he bear in mind the possibility of electoral reform in this direction and recall the attempts which a previous Labour Government made in 1930?

The Prime Minister: I have heard a large number of suggestions about another place, but I do not think that many people have seriously suggested electing the other place. As to the representation of one of the smaller parties in another place, the Leader of the Liberal Party will know that, contrary to the precedent set by my predecssors, it has been possible in the last three-and-a-half years to recommend a number of


distinguished Liberals for service in another place.

Mr. Anderson: Will my right hon. Friend give an assurance that the legislation will be sufficiently speedy to prevent there being a lame duck Session in 1970–71, when the Tory Peers will have a stranglehold over the measures which we were sent here to promote?

The Prime Minister: I am sure that that and all other relevant considerations will be borne in mind both in the timing and in the form.

NATIONAL HEALTH SERVICE

Mr. Pavitt: asked the Prime Minister if he will co-ordinate the activities of the Lord President of the Council, the Minister of Health and the Minister for Social Security, with a view to the preparation of a declaration of policy for the National Health Service as and when economic conditions improve.

The Prime Minister: As to co-ordination, the House already knows that my right hon. Friend the Lord President of the Council is supervising the planning and timetable for amalgamation of the Ministries of Health and Social Security. As to the policies for the development of the National Health Service, these are kept under continuous review but no early statement is in prospect.

Mr. Pavitt: Will my right hon. Friend reaffirm that it remains not only his policy but the policy of Her Majesty's Government to restore the principle of free of payment at the time of need in the health services? Will he take steps by progressive stages to that end when the economic situation permits?

The Prime Minister: I will confirm— or reconfirm—what I said to my hon. Friend, which was not the exact words which he has just used: that when the economic situation permits more expenditure on the National Health Service, we shall consider that proposal against other high priorities in the matter of the Health Service. No decision has been taken. It is certainly premature at this stage to feel that we are in a position to begin thinking about it.

Mr. Maurice Macmillan: Will the Prime Minister meanwhile tell the House

who speaks in the Cabinet on health and social security matters? Is it the Lord President of the Council, or are Departmental Ministers called in?

The Prime Minister: It is not usual to discuss Cabinet arrangements, but the hon. Member might like to know—I think that he does know—that at the present time, as always in the past, those Ministers are present whenever there is anything directly or even indirectly affecting their Departments, and, of course, they have full rights of speaking.

Mr. Thorpe: Whatever the method of co-ordination, will the Prime Minister confirm that it is his Government's intention at the earliest possible moment to return to the principle of a free Health Service?

The Prime Minister: I have already answered that in relation to the question from my hon. Friend. I have said that when more money is available—and it would be foolish at this stage to say that that is in sight at the present time— for the Health Service, we shall consider various priority claims for that expenditure. We are, of course, carrying out a record hospital building programme of nearly double the rate which we inherited. There are, however, many hon. Members who would feel that it should be stepped up further before other things were considered.

RHODESIA

Mr. Evelyn King: asked the Prime Minister if he will make a statement on the latest situation in Rhodesia in the light of action taken by the British representative at the United Nations.

The Prime Minister: I would refer the hon. Member to the Answers I gave to Questions on 27th June.—[Vol. 767, c. 807–13.]

Mr. King: Has not the Prime Minister indicated that agreement is now unlikely? If that is so, will he estimate the continuing damage thus deliberately, through sanctions, clamped on the British economy? Will he also represent to fellow members of the United Nations that if within three or six months others do not bear their fair burden this country cannot continue along this course?

The Prime Minister: Hon. Members opposite have recently voted against the proposition that we should bear a fair burden: they opposed the United Nations Security Council resolution. They cannot have it both ways on this question.
In reply to the earlier part of the question, I did not say that an agreement was unlikely, nor do I consider that. I said that we must see a fairly radical change of attitude about the six principles on the part of Rhodesian leaders who would have the power to deliver an agreement— not merely to make it but, after what happened on "Tiger", to deliver afterwards.

Mr. John Lee: Bearing in mind that sanctions have been applied for a considerable time, can my right hon. Friend give his estimate of the length of time that it will now take to bring the Rhodesians to heel in the light of the very welcome imposition of the mandatory sanctions?

The Prime Minister: No, Sir, I do not think that it would be possible now to make an estimate about that. It is very well recognised that in Rhodesia there is growing pressure for a reasonable settlement as a result of the sanctions and the fears of the latest developments, but I would like to see that translated into a genuine acceptance of the six principles and of a constitutional settlement which gives effect to them.

Sir G. Nabarro: Will the Prime Minister say what action he is taking in regard to Zambia, which protests most loudly about British behaviour yet continues to trade on the greatest scale of any country in Africa with her neighbour Rhodesia?

The Prime Minister: The hon. Member must realise that there has been a very large cut in Zambian purchases from Rhodesia, even though at one time they were almost an integrated economic community in very many respects. Zambia is still importing some essential goods from Rhodesia, but many other goods have been cut out. The United Nations specially recognised the problem of landlocked countries such as Zambia and countries contiguous to Rhodesia whose economies in the past have been very closely integrated.

TOURISM

Mr. Milne: asked the Prime Minister if, in view of the fact that an adverse figure was recorded in the balance of payments returns for June 1968, he will reconsider his decision not to set up a separate Department for Tourism.

The Prime Minister: If my hon. Friend is concerned with the effect of tourism on the balance of payments he will be glad to know that the number of foreign visitors arriving in the United Kingdom in the first four months of 1968 was 18 per cent. higher than in the corresponding period of 1967. As to a Department of Tourism, my view is still as I expressed it in reply to a Question by my right hon. Friend the Member for Kettering (Sir G. de Freitas) on 29th February.—[Vol. 759, c. 414.]

Mr. Milne: Is my right hon. Friend aware that it is precisely for this reason that the necessity to appoint a Ministry of Tourism arises and, to take advantage of this rapidly expanding industry, it is essential that it be placed under the control of one Minister?

The Prime Minister: I think that the most satisfactory solution is the present position where the President of the Board of Trade and his Minister of State are directly responsible not only for tourism, but also for overseas travel both by sea and by air. I think that this is a much more helpful way of encouraging tourism. As I say, the results so far this year have been extremely encouraging.

Mr. Tapsell: Will the Prime Minister accept, in the context of our balance of payments, that the first essential for the restoration of the national credit is that he should resign?

The Prime Minister: No, Sir, and I pray that the right hon. Gentleman the Leader of the Opposition will not either.

Mr. Kelley: Will my right hon. Fiend avail himself of this opportunity to inform the House that if we solve our balance of payments problem by any means we are creating a balance of payments problem for someone else and they will probably take the same opportunity to rid themselves of the encumbrance?

The Prime Minister: I think that, in a global sense, my hon. Friend is no


doubt expressing a great economic truth. It is the job if this Government to look after our own interests.

Sir J. Rodgers: If, according to his priorities, the Prime Minister thinks it desirable to have a Minister looking after sport, is it not far more desirable to have a Minister looking after tourism in view of our balance of payments situation?

The Prime Minister: My hon. Friend in the Department of Education and Science has other responsibilities besides sport. The hon. Gentleman will recognise that the Minister of State, Board of Trade, is employed virtually full-time on the related questions of tourism, civil aviation and shipping. From my own experience—and the right hon. Gentleman who had experience of responsibility for these matters will probably confirm— I think that this is probably the best arrangement in order to maximise our tourist earnings and the number of people coming to this country.

Several Hon. Members rose——

Mr. Speaker: Order. Mr. George Thomson to answer several Questions together.

NIGERIA

The Secretary of State for Commonwealth Affairs (Mr. George Thomson): With permission, I will now answer Questions Nos. 7, 8, 12, 16, 21, 22, 24 and 25 together.
Since I made my statement in the House on 26th June, after the return of my noble Friend Lord Shepherd from Nigeria, we have taken the following action to aid a settlement of this unhappy war.
At our request, Mr. Arnold Smith has taken steps to convey to the Biafran authorities that in the light of my noble Friend's discussions in Lagos, the opening of direct informal discussions between the two parties in London with a view to the reconvening of the Kampala peace talks are, in our view, possible and could be productive.
In addition to Mr. Smith's action, Lord Shepherd has spoken yesterday to Mr. Kogbara, who was associated with Sir Louis Mbanefo in his earlier talks and

urged upon him the need for a representative of Colonel Ojukwu to come to London as soon as possible in pursuance of the undertaking given by Sir Louis.
I have accordingly read with regret— which I am sure hon. Members on both sides of the House will share—the reports of Colonel Ojukwu's speech on Sunday at Owerri. I hope that this speech does not mean that he has turned his back on the attempt to secure a return to the negotiating table: in that event, the responsibility he would incur would be grave indeed.
On the question of our arms policy, I have nothing to add to what I said in the House on 26th June (OFFICIAL REPORT, cols. 444–453). But I should like to take advantage of this opportunity to tell the House of our attitude if, following upon a cease-fire in Nigeria, the two parties to the conflict were to request an external observer force and were to ask for British participation in it. In that event, Her Majesty's Government would be ready to contribute up to one battalion with appropriate support, for a period of up to six months, to a Commonwealth force on the understanding that other Commonwealth countries also agreed to take part on a suitable scale and that such conditions were agreed upon as would permit the force to carry out its duties effectively.
Regarding relief, I promised on 26th June to make a further statement on this subject. Subject to parliamentary approval, I can now say that in addition to the £20,000 which we have already given to the Red Cross, Her Majesty's Government will now make available a further sum of up to £250,000 for humanitarian relief in the war-stricken areas of Nigeria, including the Ibo areas. Parliament will be asked in due course to approve a Supplementary Estimate. In the meantime, an advance will if necessary be sought from the Civil Contingencies Fund. The intention is that this relief aid should be used as flexibly as possible in order to make the greatest contribution to the relief of suffering, hardship and malnutrition.
To ensure that the money is spent in the most effective way, expert advice and on the spot discussion with local authorities and relief bodies concerned will be necessary. We are, therefore, arranging,


given the necessary co-operation of both sides, for a high-powered relief advisory team to go out to Nigeria as a matter of urgency in order to assess the forms which our humanitarian help should take.
I am glad to be able to announce that Lord Hunt has accepted the invitation of my right hon. Friend the Prime Minister to lead the relief team to Nigeria and to make recommendations. Sir Colin Thornley, Director-General of the Save the Children Fund, and Mr. A. B. Hodgson, Deputy Director-General of the British Red Cross Society, have agreed to accompany Lord Hunt on this mission.
I am sure that the whole House will join with me in expressing our thanks to Lord Hunt and Sir Colin Thornley and Mr. Hodgson for agreeing to undertake this arduous but vital task.

Mr. Winnick: Is my right hon. Friend aware that everyone in the House and in the country will be very pleased about the steps that he has just announced to try to give aid—food and medical supplies—to millions of people in need in Biafra?
Is my right hon. Friend also aware that many people here are outraged that arms supplies continue to be sold to the Nigerian Federal Government while there are millions of people starving and near to starvation in Biafra? Will the Government look again urgently at the question of arms supplies to the Nigerian Federal forces?

Mr. Thomson: I think that the important aspect is to bring about a cease-fire. I think that Her Majesty's Government have had some influence concerning the progress that has so far been made. Under these circumstances, I do not see any reason to change the position that was adopted by my right hon. Friend the Foreign Secretary when this matter was fully debated in the House a week or two ago.

Mr. Barnes: Does my right hon. Friend agree that the next two weeks are absolutely critical, because if supplies of food and medicines, at present sitting in Fernando Po and Lagos, are not got in by air, thousands of children will die? Has my right hon. Friend been able to use his influence to get the Federal Government to agree to Oxfam operating from Fernando Po a Hercules aircraft, which

is available, and for which they are prepared to pay, which later this week could be flying in 100 tons a day?

Mr. Thomson: I understand that discussions are proceeding between the International Red Cross, Oxfam, the Ibo authorities in the East and the Federal Government in Lagos about the urgent matter that my hon. Friend has raised. From what I have been able to see of the appalling position around the fighting line in Nigeria, I think that there is a need for an emergency airlift. However, it is equally important to realise that if the human need is to be met in these areas the necessary volume of supplies can only be brought in by overland routes. The difficulty in getting agreement to that comes not from Lagos—they have given their agreement readily to these arrangements —but from the authorities in the Ibo areas.

Mr. Dempsey: Is my right hon. Friend aware that only within the last few days Biafra was described as a modern Belsen where 3,000 children have died from starvation and disease? While we welcome the additional £250,000 aid, will my right hon. Friend see to it that the amount is substantially stepped up to make our contribution towards alleviating any further suffering by the people of Biafra?

Mr. Thomson: I think that £250,000 is a very substantial contribution towards dealing with this problem. It is not directly a British responsibility; it is an International problem. I hope that the example set by Her Majesty's Government will be followed by some other countries.

Mr. Frank Allaun: Is the Government's argument against stopping arms supplies the allegation that it gives us influence? Since the slaughter and starvation are continuing, it is clearly not giving us influence. Why cannot the Minister listen to the obvious feeling throughout the House and the nation that the Government should stop, jointly and individually, this traffic in arms?

Mr. Thomson: I think that if my hon. Friend with his usual fairness, studies what I have said he will see some evidence in the initiative that we have taken, and the results that we have obtained, of the kind of influence that we have with the Federal Government of Nigeria which


is, after all, a major fellow Commonwealth Government. I am sure that at the moment very little slaughter is taking place. It is starvation which is of immediate concern, and the obstacle to getting something done about it is that the proposals made by the Federal Government to pull back their troops and have a kind of corridor of mercy have so far been obstructed by the authorities in the Ibo region.

Mr. Tilney: Having had lunch with a Member of Parliament of the Eastern Region who almost alone out of 300 people survived a massacre by the Ibos, may I ask the right hon. Gentleman whether he agrees that atrocities have been committed by both sides? Although many of us have sympathy for the Ibo people, now that it looks as though their food and lives can be safeguarded internationally is not there some way of overcoming the suicidal wishes of their leaders and appealling to the Ibo people to come to a conference?

Mr. Thomson: I am grateful to the hon. Gentleman for what he has said. I am sure that he is right. A civil war is one of the greatest tragedies that can happen, and a civil war of this character has meant that there have been atrocities on both sides. I hope that Colonel Ojukwu will respond to the appeal made by the hon. Gentleman and send somebody to the conference table. We could get these talks started immediately. They could bring about a cease-fire, and also be of vital importance in setting international agreement about a real international effort to alleviate the suffering and hardship that is going on.

Sir Alec Douglas-Home: The right hon. Gentleman has made some announcements this afternoon which I think the House will welcome, but they are in the rather longer term. So is the organisation of supplies over the land route. Is not the essential factor an assurance from Colonel Gowon that he will allow an airlift from Fernando Po? Cannot he ask Colonel Gowon to give an assurance that there is no possible obstacle in the way of that being done? I should have thought that that was the first thing to do.

Mr. Thomson: About an hour before coming to the House I heard from Lagos

that the problem raised by the right hon. Gentleman was under active discussion in Lagos between the Federal Government and the International Red Cross about the means of delivering supplies to the rebel areas. An emergency airlift is one possibility which the Federal Government have not ruled out.

Mr. David Steel: Has the right hon. Gentleman seen the detailed report in this morning's Scotsman in which the International Red Cross said that a cease-fire is essential in Nigeria if the Ibo people are to return to their villages and produce food themselves? Can the right hon. Gentleman say that we are contributing to a cease-fire if we and other nations of the world indiscriminately pour arms into the country?

Mr. Thomson: I studied the report in the Scotsman this morning, and was very much impressed by the account it gave of the human suffering, as one has been by so many reports coming out of these areas. But it is untrue to say that the British Government are indiscriminately pouring in arms. The arms which we provide for the Federal Government are under careful scrutiny and control all the time. The fighting is not taking place on any scale at the moment, as a result of self-restraint exercised by the Federal Government. I am sure that the important thing for us all to concentrate on is to persuade the Ibo authorities to do two things. First, to come and talk around the conference table, and, secondly, to respond to the offer to pull back the fighting men and thus create a corridor of mercy and get supplies moving on an adequate scale to deal with the problem.

Mr. E. L. Mallalieu: Will my right hon. Friend be more precise about the observer force which he said the Government are ready to promise? Will it be armed?

Mr. Thomson: Some contingency planning has been going on for some time about the possibility of this kind of Commonwealth force, but I think that my hon. and learned Friend will understand that it is impossible to make very much progress until we are rather closer to knowing how many people will be willing to participate, and in what circumstances. Her Majesty's Government thought it right to take the initiative in this matter and give the kind of


lead that we have sought to give this afternoon, and we hope that it will meet with some response.

Mr. Hugh Fraser: While the House welcomes the right hon. Gentleman's statement, I think that many of us feel that its speed is not being met by the right hon. Gentleman's proposals. There is essentially a matter of speed in these things. Will he consider again the idea of making a Royal Air Force detachment available to the International Red Cross? It is only by air that we can get supplies m quickly enough.

Mr. Thomson: Speed is of the essence in our proposal for a relief mission. I hope that, with the necessary co-operation in Nigeria, Lord Hunt and his colleagues will be there at the end of this week. I think that we must await the report which they will bring back, with a proper sense of urgency, to enable us to decide, among other things, what is the best transport method of meeting these needs. In the meantime, I am in no doubt that there is a need for an emergency airlift as a temporary measure, but I hope that the House will accept that if supplies are to be provided on an adequate scale they must go in by overland routes.

Mr. Crawshaw: Is my right hon. Friend aware that if the Ibos are not cooperating this is probably because we are failing to show our moral responsibility in this crisis? How can they possibly place reliance on us when we are putting supplies into the hands of their enemies? I know the difficulties confronting the Government, but is it not possible to stop supplies even for two or three weeks while these negotiations are going on, to give the Ibos some feeling of security in this matter?

Mr. Thomson: I think that giving the Ibos a feeling of security is a vital element in this whole situation. It is for this reason that we have given the backing we have to the idea of a Commonwealth force. I think that this kind of international force will give the Ibos a longer term sense of security. I hope that on the basis of being given that assurance they will be ready to come and negotiate flexibly around the table—I hope within the framework of a single

Nigeria—arrangements for living at peace with their neighbours.

Mr. Braine: May I press the right hon. Gentleman to answer the crucial question? Is he aware that the advisory team must, of necessity, take a week, 10 days, or perhaps even longer to make its recommendations? In the meantime, the voluntary agencies on the spot have reported that thousands of children are dying. Is the right hon. Gentleman aware that these agencies have stockpiled food in Fernando Po, and have an aircraft ready to fly in supplies? What obstacles are preventing this mercy mission taking place tomorrow?

Mr. Thomson: I think that the hon. Gentleman over-simplifies the position. Talks are going on about the supplies in both Fernando Po and Lagos, and about the best means of getting these as quickly as possible to the people who need them. I have no reason to believe that there are any obstacles on the Federal side to that taking place, but if they go in by air the planes will have to land on an improvised grass strip. The proposal which Oxfam and that the International Red Cross are considering is a landing on an improvised grass strip. If that is done, it will be on much too small a scale to meet the real needs.

Mr. Braine: With respect, I think that the right hon. Gentleman is misinformed. The plan is to drop food because of the difficulty in using air strips.

Mr. Thomson: We are ready to look at and co-operate in any method which will get the supplies as quickly as possible to the people who need them.

Mr. James Griffiths: Is my right hon. Friend aware that we all join in the appeal that he has made to Colonel Ojukwu to accept the offer to come to London and get a cease-fire quickly? Will he reconsider what has been said from both sides of the House, that this is very urgent, and will he take all possible steps to assist Oxfam and others who are ready to go into action at once, long before the assessors can return to this country?
Secondly, will my right hon. Friend press for a cease-fire as soon as possible? I appreciate the efforts which have been made, but is my right hon. Friend aware that the consensus of opinion is that unless


a cease-fire is brought about the Government ought seriously to consider withdrawing arms support from the Federal Government?

Mr. Thomson: Naturally, I always listen with respect to what my right hon. Friend, with his great experience in the office that I hold, says about these matters. I assure him that the Government are tackling everything that they do with a sense of maximum urgency. I do not think that anybody is under any illusion about the strength of public opinion on the issues here, to which my right hon. Friend has just given such eloquent expression.

B.O.A.C. STRIKE (NEGOTIATIONS)

Mr. Rankin: (by Private Notice) asked the Secretary of State for Employment and Productivity if she will make a statement on the terms of the agreement which has been reached between B.O.A.C. and its pilots.

The First Secretary of State and Secretary of State for Employment and Productivity (Mrs. Barbara Castle): At a meeting of B.O.A.C. and B.A.L.P.A. representatives under my Department's chairmanship yesterday arrangements for a return to work by B.O.A.C. were discussed.
The talks covered clarification on the scope of the forthcoming negotiations on pay structure under the independent chairmanship of Professor Wood, an undertaking by both sides that there would be no victimisation by either side, including measures to ensure that the pension and seniority rights of pilots who have been on strike are not adversely affected and arrangements for the restoration as soon as possible of the Corporation's services.
At the conclusion of the discussions, B.A.L.P.A. called off the strike and B.O.A.C. has agreed to reinstate all pilots on the Corporation's payroll from tomorrow, when its services will restart.
B.O.A.C. and B.A.L.P.A. have met today under Professor Wood's chairmanship to begin their negotiations on pay structure. He will in due course prepare a general report on these negotiations

which will be available to assist the P.I.B. in the reference on pilots' pay and productivity which is at present before it.

Mr. Rankin: I am sure that hon. Members on both sides of the House welcome the progress that has been made so far and also hope that the continued meetings and negotiations will result in a full settlement which is satisfactory both to B.O.A.C. and the pilots. I am sure that no hon. Member on either side of the House would want to do or say anything today that would hinder a speedy settlement.

Mrs. Castle: I endorse everything that my hon. Friend has said. As I have said in my reply, negotiations have already started on the detailed pay talks under Professor Wood this morning, and we must all hope that they will reach a satisfactory conclusion. In the meantime the pilots are going back to work.

Mr. Corfield: There are still some issues outstanding. Can the right hon. Lady give us some idea of what those issues are? A number of contrasting statements have been made from both sides. Further, can the right hon. Lady give us some indication of the nature of Professor Wood's position? Is he an arbitrator? Has any agreement been arrived at that his findings will be held to be binding on either side?

Mrs. Castle: There are no issues outstanding which would prevent the resumption of work. Agreement has been made to resume work as from one minute after midnight tonight, the earliest practicable date by which B.O.A.C. could arrange for services to be resumed. Professor Wood's terms of reference were, first, to assist the parties in finding a basis for a resumption of work and, secondly, to help them in the forthcoming negotiations on pay structure and other outstanding matters—for example, the pilots' agreement for services.

Mr. William Hamilton: Will my right hon. Friend give an assurance that no agreement will be approved by her unless it comes strictly within all the criteria laid down in the prices and incomes policy?

Mrs. Castle: In my statement, I said that Professor Wood will in due course be making a general report to the P.I.B.


on the outcome of the negotiations. It has always been understood and accepted by the pilots that at the conclusion of their talks with B.O.A.C. the outcome would be referred to the P.I.B.

Sir A. V. Harvey: To bring about a better relationship between the management and air crew, will the right hon. Lady take into account the fact that Sir Giles Guthrie has been carrying a tremendous burden as chairman of a large executive for four and a half years? Will she consider filling the existing vacancy on the Board with a senior captain who can bring about the kind of liaison which most other airlines have?

Mrs. Castle: I am sure that the hon. Member will realise that the composition of the Board of B.O.A.C. is not for me, but for the President of the Board of Trade.

Mr. Orme: Is my right hon. Friend aware that the whole trade union movement will watch these negotiations with a great deal of interest, and especially their outcome? In this case, will her well-known theme of linking any pay increases with productivity be maintained?

Mrs. Castle: Certainly—these are pay and productivity talks. I can tell my hon. Friend that they have always been accepted by the pilots in that sense. We have made it clear time and again that pay linked with productivity is within the criteria.

Mr. James Davidson: We all hope for a happy outcome to these negotiatons, but is the right hon. Lady aware that a great deal of carrying trade has been lost by Britain due to this dispute? Will she ask her right hon. Friend the President of the Board of Trade seriously to reconsider his turning down of applications for licences by various independent companies—for example, Caledonian Airways—which would have helped to fill the gap while this dispute was going on?

Mrs. Castle: I am sure that the House realises that matters like this are not for me but for my right hon. Friend the President of the Board of Trade, who will no doubt note what the hon. Member has said.

Mr. Heffer: Following up the point made by my hon. Friend the Member

for Salford, West (Mr. Orme), which is a very important one, will my right hon. Friend say—now that the question of incomes is an essential part of discussions in the House—what precisely are the terms of reference of Professor Wood? Secondly, will the question of comparability with airlines in other parts of the country be included? Thirdly, are we to understand that this is to be a genuine productivity agreement and not a "phoney" productivity agreement?

Mrs. Castle: I thought that I had made the terms of reference of Professor Wood quite clear. They are to help the parties in the forthcoming negotiations on pay structure and on other outstanding matters, such as the pilots' agreement for service. He will preside over the talks to help the parties reach agreement. I have also made it clear that he will then make a report to the Prices and Incomes Board on the outcome of the negotiations and help it in relation to the reference on pilots' pay and productivity that is currently before the Board. I am sure that we can accept that the normal procedure in these matters is being followed.

Mr. John Page: In view of the fact that the pilots are reported to be negotiating for an increase about 15 times above the ceiling of the prices and incomes policy, may we assume that the talks at the right hon. Lady's Department anticipated a roughly similar kind of increase in productivity?

Mrs. Castle: I have said time and again that these are pay and productivity talks. They have always been accepted as such. There clearly must be a relationship between the two sides. I suggest that we wait and see what comes out of the talks.

AINTREE (GRAND NATIONAL STEEPLECHASE)

The Under-Secretary of State for Education and Science (Mr. Denis Howell): With permission, I wish to make a statement about the future of Aintree and the Grand National Steeplechase.
This race is one of the nation's great sporting festivals and its continuance is inevitably bound up with the ownership of the Aintree course, since it is clear that the race will completely change its


character if it is transferred elsewhere. The Government also believe it to be important for considerations of regional policy to keep as many important events as possible in the provinces.
With these objectives in mind, the Government initiated talks with all the interested parties and as a result I can now make an interim statement following discussions with the Liverpool Corporation, the Turf Authorities, the Horse Race Betting Levy Board and Messrs. Tophams Ltd., the present owners.
The chief consideration is that of ownership and Her Majesty's Government have informed the Liverpool Corporation that we are prepared to give loan sanction for the capital sum required for the acquisition of the land. We shall also be prepared to apply the provisions of Section 8 of the 1966 Local Government Act in order to make them a grant not exceeding 50 per cent. in respect of that portion of the site which is to be kept as public open space.
I am glad to say that the Liverpool Corporation places great importance upon obtaining full public access for general recreational purposes at Aintree, on all days when racing is not taking place. As Merseyside has much less open space than the national average this will be a significant contribution to the social life of the neighbourhood.
It is hoped that this offer will facilitate negotiations with Messrs. Tophams for the purchase of the land.
If Liverpool acquires the site it is understood that it will wish to lease the racecourse to a non-profit-making trust body to be established under the chairmanship of Lord Leverhulme. This trust will seek to develop Aintree as a National Hunt Racing centre in the North, a scheme which has the support of the Horse Race Betting Levy Board. By these means the Grand National and racing at Aintree will be maintained and no charge will fall upon the Liverpool ratepayers in respect of them.
It is believed that at a later date the Liverpool Corporation may wish to establish a sports centre on the site, a project in which the North-West Regional Sports Council is much interested, and, if so, we would expect that there would

be the fullest co-operation in the design and provision of buildings of a multipurpose character between Liverpool, the Racing Trust and the Levy Board.
Mr. Speaker, I hope that this announcement will enable negotiations to be brought to a successful conclusion for the purposes that I have outlined.

Mr. Charles Morrison: Everyone interested in racing, and particularly in the future of the Grand National, will welcome the Under-Secretary's statement and it will be generally welcomed that in future Aintree is to be used for other recreational purposes. However, in spite of the hon. Gentleman's statement, the future of Aintree will still clearly depend on a successful conclusion to the negotiations between Liverpool Corporation and Messrs. Tophams, and this may take time.
Can the Under-Secretary therefore assure the House that there will be no time limit to the offer of a grant under Section 8 of the Local Government Act, 1966? Can he say whether negotiations for the purchase of the land between Liverpool Corporation and Messrs. Tophams are now in progress?

Mr. Howell: I am grateful for what the hon. Gentleman has said. I can assure him that the offer is obviously intended to be kept open. He will understand that negotiations could not begin until we had made these arrangements with Liverpool Corporation, and we were able to conclude them last week. Liverpool Coporation now knows what help it will get from the open space grant which I mentioned and is, therefore, now prepared to enter negotiations immediately with Messrs. Tophams.

Mr. Alldritt: Will my hon. Friend take it from me that his statement will be received with great satisfaction on Merseyside? However, will he give an undertaking that the other authorities who are bound to be involved in the recreational side of this project will meet their part of the burden?

Mr. Howell: The whole point of the arrangement is that although we might have a sports centre, it is not an early prospect. The main point is that this arrangement will enable the whole of the land to be used for almost all the


time, excluding race days, for general recreational purposes by the people of Merseyside. This is a significant step forward..

Mr. Tilney: I, too, welcome what the hon. Gentleman has said. Can he tell the House the likely cost of the land and say whether Liverpool Corporation will have any representation on the non-profit-making body, so that it can watch the day-to-day administration in the landlard's interest?

Mr. Howell: The issue of representation on the non-profit-making trust will not cause any difficulty. The parties are anxious for Liverpool to have such representation. It would be wrong for me to say what I think the land is worth, or what it will fetch. That is a matter to be negotiated between the paries, subject to the approval of the district valuer.

Mr. Alfred Morris: Is my hon. Friend aware that there will be widespread pleasure that this major international event is to be retained in the North-West? However, can he say more about the financial side? Is there to be any public or Ministerial appeal against any amount which may be agreed between Liverpool Corporation and Messrs. Topham? Secondly, as there is only one race meeting a year at Liverpool, is it intended that Aintree will still be used for only one meeting, or are there to be more race meetings?

Mr. Howell: As I have already said, whatever price is agreed will have to be subject to the normal district valuer procedure, and that is, therefore, a public safeguard. My hon. Friend is correct in saying that there is only one race meeting a year at Aintree, but it is proposed by the trust and the Levy Board that in future there should be more race meetings a year; but this is a matter for negotiation between the parties and is not for me.

Sir D. Glover: Is the hon. Gentleman aware how much I welcome his statement, as the great Aintree racecourse is in my constituency? Is he aware that, although it is in the area of the Lancashire County Council, I believe it right that negotiations should have been with the Livei-pool Corporation, because the Liverpool conurbation will inevitably get far more of the advantages out of this

remaining open space? What the hon. Gentleman has said—

Mr. Speaker: Order. Even when an issue affects his constituency, an hon. Member should ask brief questions.

Sir D. Glover: When will the hon. Gentleman be able to announce, or does he have any idea, when these negotiations may be concluded? It sounds from his statement as though there are many hurdles to overcome.

Mr. Howell: I shall certainly not risk my neck as a punter or forecaster on that sort of guess. My hope is that things can now proceed much more rapidly than over the last five or six years. I know that the hon. Gentleman has a constituency interest and I take his point about Lancashire, which has been extremely helpful in these negotiations, although part of the course happens to be in the constituency of one of my hon. Friends.

Mr. Heffer: Is my hon. Friend aware that part of the course is in my constituency? [HON. MEMBERS: "Only the start."] Is he aware that for many years many of us have been advocating that the area should be brought within the control of the Liverpool City Council and that, therefore, his statement is most welcome to us and to the people of Liverpool, who have always wanted to keep the Grand National in our area? Can he say—[HON. MEMBERS:"Too long."]—whether the plans which he suggests Liverpool Corporation already has for a future sports stadium are well advanced, or are merely in the air without any concrete basis?

Mr. Howell: I am glad that my hon. Friend managed to get his horse over Beechers Brook. There has been a considerable measure of agreement right across the board among the various parties in Liverpool since negotiations first began. Plans were drawn up by Lancashire County Council for the sports project, but then Lancashire ceased its interest and the discussions moved to Liverpool and the project has obviously taken on a new meaning. I am not able to say that this sports centre can be produced at an early date, but I can say that Liverpool and the North-West Regional Sports Council want to do this as soon as they can financially.

Mr. Pardoe: As Aintree is almost the only open space between Liverpool and the Prime Minister, may I congratulate the hon. Gentleman on keeping this cordon sanitaire? I welcome the proposal to keep the race on Merseyside, but will the hon. Gentleman say whether there is still room on the Aintree site for housing as well as the sporting development?

Mr. Howell: There were discussions with Lancashire County Council about small pockets of land which might be available for housing purposes by Liverpool. These discussions have not proceeded very far, but this would be a matter between Liverpool Corporation and my right hon. Friend the Minister of Housing and Local Government.

Mr. Crawshaw: As the only Member of the House who lives in Aintree, may I thank my hon. Friend for his statement? Will he also agree that, under the Labour-controlled Lancashire County Council, this is what was intended, but that, when the Tories got control in Lancashire, they went back on the agreement?

Mr. Howell: I do not think that this is a moment for me to introduce party political factors when we are in sight of reaching agreement, but I am in a position to say that there is some historical substance in what my hon. Friend has said.

Mr. Dunn: Without associating myself with the remarks made personally by my hon. Friend, may I ask whether he will be careful about co-ordinating the planning activities of all the surrounding local authorities? In the initial discussions this was a great stumbling block to a decision. I hope that he will resist any move to put housing on this open land as a first measure of this development, because, once housing gets in, the rest will go by the board?

Mr. Howell: That point is understood and taken, but I am happy to assure my hon. Friend that the Lancashire County Council and Liverpool Corporation are working harmoniously together in these matters.

NEW MEMBER SWORN

David Charles Waddington, esquire, for Nelson and Colne.

OVERSEAS AID BILL

Mr. Hirst: On a point of order, Mr. Speaker. I have given you some notice of the point and I am glad that the Leader of the House is here. It refers to notification of change of business.
I seek your guidance, if possible, on how hon. Members may be notified more adequately. Last Friday, we were discussing the Overseas Aid Bill, on Second Reading, and I was in possession of the House when the debate was automatically adjourned. The Government agreed to provide extra time, but no statement was made then. The Whip said, in the ordinary way,"Monday next". That is the ancient formula for keeping a Bill on the Order Paper. No further notification was made.
No doubt owing to unavoidable delays, I and other hon. Members did not receive our Order Papers through the post in the ordinary way and on arrival at the House yesterday I went to the notice board in the "No" Lobby to see whether the business had been changed, because I had heard it rumoured that the debate would be continued next Friday, when the remaining stages had been set down.
I was unable to be present for the resumed debate last night and it may appear that I was guilty of some discourtesy, particularly to the Parliamentary Secretary, who replied, by not being present—but that is of little account. It is, however, important that there should be a system whereby hon. Members can certainly know what the business is to be. May I ask whether some arrangement should not be made to notify change of business before you so kindly arrange to put it in the "No" Lobby?

Mr. Speaker: This is a matter for the Leader of the House. I understand that he is present. He will have heard what the hon. Gentleman has said and will obviously give consideration to what is a serious point, put very courteously.

The Lord Privy Seal and Leader of the House of Commons (Mr. Fred Peart): I will certainly give consideration to the hon. Member's point.

Orders of the Day — FINANCE BILL

As amended (in the Standing Committee) further considered.

[2ND ALLOTTED DAY]

4.15 p.m.

Mr. Speaker: I have posted an amended selection of Amendments in view of the fact that others appeared on the Notice Paper this morning. It is posted up in the usual way. We come first to new Clause 86.

Mr. Joel Barnett: On a point of order, Mr. Speaker. It might help if you could clear up this point. On the Recommittal stage, there was some difficulty in that Amendments provisionally selected on one day fell on the following day, so that hon. Members who came to the debate on the following day thinking that they were going to discuss Amendments which had been provisionally selected found that they were not there after all.
I notice that all Amendments have been selected right through the Bill. May we take it that these are firm Amendments and that there will be no fresh selection or no further selection each remaining day?

Mr. Speaker: There may be new Amendments of course, but if Amendments have ever disappeared from those which have been selected, there must have been some good reason. The list is pretty firm.

Mr. Iain Macleod: Further to that point of order, Mr. Speaker. Surely you would not wish to rule out Amendments which, say, may have been tabled this morning and which would be perfectly proper if they were to come in their ordinary place, say, on Thursday. They would not be starred, but if a new and important point were involved I imagine that the Chair would be willing to consider and alter the list accordingly.

Mr. Speaker: I thought that that was understood from what I had said. I was dealing with the apparently mysterious point about Amendments dropping off. If they did drop of at Recommittal

stage it would have been for some technical reason and not because of variation.

New Clause 86

DIVIDENDS PAID OUT OF PRE-1966–67 PROFITS

(1)This section has effect as respects the calculation of the three year surplus under section 85 of the Finance Act, 1965.
(2)If the company's dividends paid in the years 1966–67, 1967–68 and 1968–69 are related to periods of account exceeding three years in total, the amount at which those dividends are brought into the calculation shall not exceed the amount of the company's dividends which are related to the first three years of that total period, and which were paid in the years 1966–67, 1967–68 and 1968–69, or earlier: 

Provided that if any of the dividends paid in 1966–67, 1967–68 and 1968–69 are related to any period of account ending before 6th April, 1965, this subsection shall apply with the substitution, for the first three years of that total period, of a period of three years beginning with the period of account in which that date falls. 

(3)This section shall not apply to a company if before 21st June, 1968 a resolution was passed or an order was made for the winding-up of the company, or any other act was done for a like purpose in the case of a winding-up otherwise than under the Companies Act, 1948, and, subject to that, subsection (2) above shall apply where, under subsection (7) of the said section 85, the three year surplus is to be computed by reference to the period ending with the last accounting period of a company which is wound up, as if for references to three years there were substituted references to a period equal in length to the period beginning with the financial year 1966 and ending with its last accounting period. 
(4)Any adjustment under the preceding provisions of this section in the amount at which the dividends are brought into the calculation shall be made before taking account, under subsection (6)(a) of the said section 85, of any amount treated under section 83 of the Act as a dividend paid in the year 1966–67, and before applying Part I of Schedule 7 to the Finance Act, 1966 (groups of companies) so, however, that—

(a) this section shall not affect the proportion applicable under paragraph 1 of the said Schedule 7 in reducing a three year surplus as so adjusted, 
(b) in paragraph 2 (increase of three year surplus of principal company where three year surplus of a subsidiary is reduced) subparagraph (2) (which refers to the reductions under paragraph 1) shall have effect as if the preceding provisions of this section had not been enacted, 
(c) in applying sub-paragraph (3) of the said paragraph 2 (which attributes to the principal company its share of the excess of dividends over distributable profits of


subsidiaries) the principal company's dividends shall be brought in at the adjusted amount, but a subsidiary's dividends shall be brought in at the unadjusted amount.

(5)For the purposes of this section—

(a)' dividend' does not include a capital dividend, 
(b) a dividend is related to the period ofaccount for which it is expressed to be payable and, if not expressed to be payable for any period of account, is related to the period of account in which it is paid, 
(c)where under this section it is necessary to ascertain the dividends related to a period of three years which includes part only of a period of account, the two parts of that period of account shall be treated as separate periods of account, and the amount of the dividends related to the entire period of account shall be apportioned to the respective parts on a time basis according to the respective lengths of the parts,

and in the provisions about paragraph 2 of Schedule 7 to the Finance Act, 1966 ' the principal company' means the company whose three year surplus is being computed and ' subsidiary' means any other member of the group mentioned in that paragraph.—[Mr. Diamond.]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. John Diamond): I beg to move, That the Clause be read a Second time.
This Clause modifies the rules governing the three-year surplus relief proposed in Section 85 of the Finance Act, 1965. That relief is a transitional relief available for a company where the total dividend in the first three years of the Corporation Tax system exceeds the distributable profits for that period. The argument was that, if it was in excess, the excess may have come out of the profits made in the pre-Corporation Tax system and must, therefore, have borne the proper weight of Income Tax and Profits Tax.
In arriving at the surplus, a comparison is made between the three years' dividends and the three years' profits, but it is possible for a company to pay more than three years' dividends during the three years, and, where it has paid more than three years' dividends, obviously one is obviously no longer comparing like with like. So that that shall be so, the dividends to be taken into account are now to be those which are declared in respect of profits on accounting periods totalling three years, and these accounting periods' will start with the first one to which the first dividend in the post-Corporation Tax system relates.
I give an example of the difficulty we have in mind and which could clearly lead to abuse. It is the obvious case of a company which pays interim and final dividends to a year. Let us assume that it pays its interim in May. In the last of the three years, the company could decide to bring its interim forward from the beginning of May to the beginning of April. It could also increase its interim dividend and even so not fall foul of the dividend restraint scheme. It might both bring it forward and increase it, so that, in effect, we should be having something like nearly four years' dividends paid out of three years' profits.
Therefore, it is necessary to restrict, in order to compare like with like, the dividends and the profits both to three years. The Clause therefore provides a new rule: that the dividends to be taken into account shall not exceed in amount those attributable to the profits of a period of 36 months. That 36 months is to commence with the period of accounts to which the first of the dividends paid in this post-Corporation Tax period relates.
The justification for bringing the Clause forward now is threefold: first, to save the money that would otherwise be lost to the Treasury if advantage were taken of this method of increasing unfairly the relief; secondly, because there are certain companies which could take advantage of this, but many companies which could not, and, therefore, there would undoubtedly be lack of equity in taking opportunities of doing this; and thirdly, that it is right that at this early stage those who are considering or are likely to consider in due course what dividends they ought to declare at the end of this period—that is to say, broadly in the early part of 1969—would have the advantage of knowing the views of the Chancellor on this aspect.
Mr. Speaker, I recognise that we are on Report. I would seek to answer questions which are put to me on the details of this, if I have your permission of the House to address it again at a later stage.

Mr. Speaker: The right hon. Gentleman will not need the leave of the House.

Mr. Patrick Jenkin: I do not think that we need


delay the House for long on these technical matters. The Chief Secretary has explained briefly the effect of what appears to be a long and complicated new Clause. The point I wish to make is a quite general criticism which arises directly out of this amendment of the three-year surplus relief—the pre-Corporation Tax profits relief to which the Clause is related. This is a point which has been made to me by those who deal with these matters outside. They draw an unfavourable contrast between the swiftness with which the Government seek to block even limited loopholes, which this may well do, when the loophole is in the interest of the taxpayer, and the evident reluctance with which they are prepared to consider even well-founded cases where the provision appears to operate to the detriment of the taxpayer.
This is particularly so in relation to Section 65 of the 1965 Act, which, as the Chief Secretary will remember, was introduced during the passage of the Bill through Parliament to meet an objection which apparently the Government's advisers had not thought it necessary to meet before the Bill was published—the need to give relief in the case of pre-Corporation Tax profits. Those who discussed these matters with the right hon. Gentleman's advisers gained the general impression that they were not to worry too much about the precise details of how this relief was to work; the main thing at this stage was to get the relief on the Statute Book and the difficulties would be ironed out later.
What we have had have been almost exclusively difficulties ironed out in the Revenue's interest, including, as the Chief Secretary will remember, the very first difficulty, if it may be described as such, which was ironed out in the Finance Act, 1966 to close what was a glaring loophole for the benefit of groups of companies.
Those who have to administer these highly complex branches of Corporation Tax law continue to look back with anger at the gilbe of the Prime Minister when he accused Parliament of engaging in tomfoolery when we sought to debate these things through the watches of the night on the Finance Bill, 1965. Here we are in 1968, still finding flaws with this

provision. These are being put right only so far as they favour the Revenue.
We had on the Notice Paper in Committee, on Recommittal, and now on Report, three Clauses—I merely mentioned them, making no criticism whatever of your selection, Mr. Speaker—34, 78 and 79, all of which seek to make minor adjustments to the operation of this provision in the interests of greater fairness to the taxpayer. We have not had the opportunity to debate them, but no doubt we could have had had the Government given any indication that they were prepared to offer a little quid pro quo.
There it is. This Clause and the following one, which I do not think need detain us for long, either, are solely in the interests of the Revenue. All that I want to urge here—I hope that the Chief Secretary will feel able to give this undertaking—is that there is still time, because this is a three-year relief, to look at this again for next year with a view to making adjustments which are called for by the justice of the case in the interests of the taxpayer.
It may be said against us: why are not these matters being debated this time? It may be said that the Opposition did not indicate that these are matters of sufficient importance—

Mr. Speaker: Order. The hon. Gentleman has mentioned the Clauses which have not been selected. He must leave them alone now.

Mr. Jenkin: The only point I wish to make then is that, because of the way the Bill was drawn up, all Corporation Tax Amendments had to take the form of new Clauses. The result is that there are 116 new Clauses on the Notice Paper. In previous years the Government have given the opportunity, by the way the Bill has been drawn, for such matters as these to be discussed as Amendments to the Bill; then there may have been a greater possibility of discussing them.
The way in which the Government have leaped to the defence of the Revenue and have apparently ignored cases which have been advanced on the basis of justice for the taxpayer leaves a nasty taste in the mouth. It is the duty of Ministers to hold the balance fairly between the taxpayer and the Revenue✶ or, as the Chief Secretary is


so fond of saying, between different classes of taxpayer. He identifies the Revenue as a class which will be disadvantaged by any relief given to any particular body of taxpapers. I emphasise that it is the duty of Ministers to hold this balance. I hope that the Chief Secretary will be able to give an undertaking, if he catches your eye again, Mr. Speaker, that he will view with sympathy the cases for relief which have been made on this very complex and technical transitional relief to the Corporation Tax.

Mr. Barnett: I have a great deal of sympathy with what the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) said about the Inland Revenue being prepared to act quickly to deal with a loophole or an avoidance scheme which adversely affects the Revenue, but not the other way round. I also have sympathy with the hon. Gentleman's point about our not being able to discuss close company Amendments this year, because of the way the Bill has been drafted. This is a shame, although I have read somewhere that the Government have set up a committee to examine the whole question of close companies. 1 am rather sorry that some hon. Members are not also to be invited to take part in those deliberations.
I would like to see some of the anomalies that exist to the detriment of taxpayers put right even before next year. There is a particular point, which I should have thought that the Government might well have taken, on something which affects the way a particular part of the close company provisions works. I think, for example, of directors' remuneration. It is generally thought that four directors can have up to £13,000 of remuneration between them. This is not so. There is an example, details of which I have given to the Government, in which, even where there is as little as £13,000 remuneration between four directors, £500 of that is treated as excess.
This is clearly the type of anomaly in respect of which I should have thought that the Government would take action to bring in an Amendment this year, instead of which there is to be yet a further year during which companies and their advisers will be compelled to set up further companies and partnerships to

deal with something with which they should not have to deal at all, simply because the Act is working in a way in which Parliament did not intend it to work.
For that reason, I have a good deal of sympathy with what the hon. Gentleman said. I hope that the Government will be able to inform us not only that they are to have comprehensive discussions about the anomalies which arise and which have arisen in close company legislation, but that we shall not have to wait until 1969–70. I hope that, if necessary, when serious anomalies are thrown up in the way that close company legislation is working, a small Bill will be introduced before April, 1969, just to deal with those anomalies.

4.30 p.m.

Mr. Diamond: I have listened carefully to what has been said. I am in a little difficulty in replying in full detail to the comments on directors' allowances in close companies, and so on, but I recognise my hon. Friend's close interest in this matter, and I can only ask him to leave them with me. I will be glad of his help, which may be forthcoming in a number of ways. I can give no undertaking whatsoever that a new Bill will be introduced during the course of the year to deal with certain matters. Nor do I accept that there are any glaring anomalies of the kind he mentioned, but perhaps this is not the appropriate time to go into that matter in detail.
I recognise what the hon. Gentleman opposite said. I am surprised that he thought that we were due for criticism for having brought this matter forward at the earliest possible opportunity. As a result of the tentative inquiries that have been made during the last few weeks it has recently come to our attention that consideration was now being given to the possible amount of dividends to be declared next year, in 1969. Even though it meant taking advantage of bringing in a provision on Report, which I agree is not a convenient stage at which to bring in new provisions, I should have thought that it would be right at the earliest opportunity to let directors and others concerned know the way in which the Government's mind was working with regard to this relief.
As the hon. Gentleman said, our task is to hold the scales fairly, and that is


what this provision does. I hope that the Clause can be added to the Bill.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 85

DIVIDENDS PAID OUT OF PRE-1966–67 PROFITS: GROUPS OF COMPANIES

(1) In applying paragraph 2(3)(a) of Schedule 7 to the Finance Act 1966 (which attributes to the principal company its share of the excess of dividends over distributable profits of subsidiaries) where any subsidiary is itself a company having a notional surplus which is a three year surplus which falls to be increased under the said paragraph 2, that subsidiary's excess of dividends over distributable profits shall be the amount produced by the said paragraph 2(3)(a) in calculating that increase, so that there is attributed to the principal company the appropriate share of the excess of dividends over distributable profits not only of the subsidiary, but also of some one or more other members of the group paying dividends to the subsidiary.

This subsection applies even if the subsidiary's three year surplus as so increased is then reduced or extinguished under paragraph 1 of the said Schedule 7.

(2) In this section ' the principal company' means the company whose three year surplus is being computed under the said paragraph 2 and ' subsidiary ' means any other member of the group mentioned in that paragraph.—[Mr. Diamond.]

Brought up, and read the First time.

Mr. Diamond: I beg to move, That the Clause be read a Second time.
I am happy to say that this is a relieving Clause. The answer to the criticism made by the hon. Member for Wansted and Woodford (Mr. Patrick Jenkin) is that the first Clause we introduced protects the tax-paying public generally, and the second Clause is a relieving Clause. We have taken the first opportunity to give relief where relief is due. There is a gap in the provisions of the existing law for enabling three years' surplus relief to be given to what I can perhaps call a multi-tier company, and the provision is intended to remedy that gap.
In speaking of a multi-tier company, I have in mind a company with a subsidiary, which, in turn, has a subsidiary, and so on✶ what is generally referred to as a

subsidiary company, a parent company, a grandparent company; and, indeed, it can apply to a great grandparent company and a great great grandparent company. The present situation is that there is a gap in providing relief for groups of companies. The relief is a relief that we discussed on the earlier Clause and I have no need to repeat it.
The attempt was made to apply the relief to groups of companies. To take the simplest case, where a dividend is declared by a subsidiary company to a parent company, and the subsidiary is a wholly-owned subsidiary, so that every penny of the dividend goes to the parent company, that is not a dividend to the outside world, it is a dividend to the parent company. A parent company can generally require whatever kind of dividend it wants, having regard to the relationship between parent and subsidiary, and that is therefore not the kind of case to which the relief should apply.
Therefore, when that dividend is paid, no relief entitlement arises. Let us assume for the sake of simplicity that the dividend is wholly paid out to the public by the parent company; then, whatever relief was due is restored. The result is the situation which would have applied had there not been a group of companies, but merely one combined company distributing some of its profits to the public.
A subsidiary company may pay to its parent, which, in turn, may pay to the public, and the appropriate machinery works. But there is a gap in the present legislation, inasmuch as a subsidiary company may pay to the parent, and, indeed, to the grandparent and out to the public. The link between the subsidiary and the grandparent does not at present exist. It should exist, it was intended to exist, and, therefore, the Clause provides for the insertion of that link so that the full relief which it was intended to give will be given.
The detail is not entirely free from complexity. I have given perhaps an oversimplified but reasonably accurate account of the general impact of this relieving proposal.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 92

DOUBLE TAXATION RELIEF: GROUP INVESTMENT IN OVERSEAS COMPANY

(1) This section applies to any provision in arrangements having effect by virtue of section 347 of the Income Tax Act 1952 which—

(a) applies to any company which controls, directly or indirectly, not less than a stated fraction of the voting power of a company resident in a specified territory outside the United Kingdom, and
(b) in allowing credit against United Kingdom tax on dividends paid to any such company by the company so resident, authorises account to be taken of tax payable by the company so resident in respect of the profits out of which the dividends were paid. 

(2) Credit shall be allowed as if the provision treated the subsidiary of a company which owns, directly or indirectly, the stated fraction of the voting power of a company resident in the specified territory as if that subsidiary also owned that fraction of the voting power of the company so resident. 
(3) Credit shall not be allowable both by virtue of this section and under Schedule 17 to the Income Tax Act 1952 in the case of the same income. For the purposes of this section a company is a subsidiary of another if the other company controls, directly or indirectly, not less than fifty per cent. of the voting power of the first company, and this section shall be construed as if it formed part of Schedule 16 to the Income Tax Act 1952. 
(4) This section has effect as respects dividends paid (in the sense of section 89(4) of the Finance Act, 1965) on or after 1st April, 1968. —[Mr. Harold Lever.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. Harold Lever): I beg to move, That the Clause be read a Second time.
The Clause has an interesting history in that it is an attempt, and I think a successful attempt, to meet a point raised in Committee by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin). He moved an Amendment on which we had, and still have, alas, different interpretations as to its effect. The Clause is intended to meet the effect that his Amendment had in his opinion. That being the relevant factor, I hope that the hon. Gentleman will accept the Amendment. It is a highly technical one which, I hope, will meet with the approval of the House without our having to grapple with the wholly irrelevant considerations of whether his original Amendment would have had the purpose he thought, and no doubt still thinks, it had, and not the pur-

pose we thought, and still think, it had. Since we are all agreed that the purpose he intended was a valid one, we have met it by the Clause, which I hope will commend itself to the House.

Mr. Patrick Jenkin: The Financial Secretary has reminded the House that this Clause was the one where we had a dispute in Committee as to what the Amendment which I moved meant. I have no wish to try to justify the view which I then held, namely, that the speech which I made was directed to the Amendment that I had moved. I have been satisfied that I was right. Equally, the Financial Secretary has been satisfied that he was right. I do not think that any profit would be gained from seeking to argue the case as to which of us, in fact, was right. Certainly, Mr. Deputy Speaker, I would not seek to ask you to judge in the dispute between us.
However, I think it right to say, as it were in justice to those on whose advice we on this side have to rely, that in Committee I suggested that, so certain was the Financial Secretary that he was right, it was conceivable that I might have been wrong. As a result, we were both somewhat unfairly pilloried in a scathing leading article in the Daily Mail, of which the only part I agree with was the title, which said:
The farce in Committee Room Ten must stop.
As my right hon. Friend had been saying this for some weeks, I cheered at that point, but, when I read it, I felt that we were being unfairly attacked.
This was exactly the sort of case which, on the Government's argument, was thought might be dealt with more effectively by experts in Committee upstairs, but we have still been unable to resolve our differences. The only point that I would make before coming to the new Clause is that it gives one serious cause to wonder whether the method by which we choose to debate these complicated financial matters in Finance Bills is that best designed to serve the ends which hon. Members on both sides have at heart.
My hon. Friend the Member for Cities of London and Westminster (Mr. John Smith) likened our operations to those of two operators of one of those pier mechanical cranes with which one tries


to pick out prizes from amongst a mass of sugar beans, with the Government and the commercial interests concerned operating by indirect control through the Treasury Ministers and hon. Members of Her Majesty's Opposition. This is a simile which I find attractive. It is not an altogether unfair description of the way in which we work.
Purely as my own idea, I would throw out the suggestion that it might be more convenient for these highly technical questions of taxation to be considered by a small Select Committee of perhaps four or five hon. Members, who could hear expert evidence and then present to the House a reasoned view as to the Amendments which ought to be made.

Mr. Robert Sheldon: Has the hon. Gentleman thought—

Mr. Deputy Speaker (Sir Eric Fletcher): Order. On Report, I do not think that we ought to debate the suggestion that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) is throwing out.

Mr. Jenkin: Mr. Deputy Speaker, I had not intended to say any more than that.
Turning briefly to the new Clause, we on this side of the House welcome it. It meets entirely the case that I put in Committee, namely, that the test of control in the case of a group of companies owning shares in a company operating overseas should be the same, whether the relief claimed is treated relief or unilateral relief. In other words, the share should be the same for subsidiary companies in both cases. This seems to be a small but welcome improvement, and I would express the gratitude of this side of the House to the Financial Secretary for having considered the case put before him.

Mr. Raymond Gower: I hope that the Financial Secretary will not think it presumptuous of me, because I appreciate that every care has been taken in this drafting, but I am not happy about the wording of subsection (l)(a) when it refers to
not less than a stated fraction ".
I hope that the hon. Gentleman is quite sure that that wording is exact enough. He

will appreciate that it may be necessary in due course for the Clause to be interpreted, and it is a very loose form of words. Almost anything could be interpreted as being "a stated fraction". It might be one-hundredth. It might be 50 per cent.

Mr. Harold Lever: A stated fraction will be that relevant in relation to the double taxation treaties to which it applies. That is an exact number and causes no discretionary power to come into operation.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause

INTEREST PAYABLE ABROAD

(1) Subject to subsection (2) below, in section 52(5) of the Finance Act, 1965 (conditions in which payments of interest to non-residents are charges on income for corporation tax) paragraph (b) (under which the liability must have been incurred wholly or mainly for the purposes of activities of the trade carried on outside the United Kingdom) shall apply to interest which is payable in the currency of a territory outside the scheduled territories as if in that paragraph the words ' carried on outside the United Kingdom' were omitted.
(2)Subsection (1) above shall not apply where—

(a) the trade is carried on by a body of persons over whom the person entitled to the interest has control, or
(b) the person entitled to the interest is a body of persons over whom the person carrying on the trade has control, or
(c) the person carrying on the trade and the person entitled to the interest are both bodies of persons, and some other person has control over both of them.

In this subsection the references to a body of persons include references to a partnership, and 'control' has the meaning assigned to it by section 87(1) of the Capital Allowances Act, 1968. 


(3) In section 138(1) of the Income Tax Act, 1952 (income tax provisions comparable to the said section 52(5)(b) for paragraph (b) (payment of interest to be secured on trading assets abroad) there shall be substituted the following paragraph—

'(b) that either—

(i) the liability to pay the interest was incurred wholly or mainly for the purposes of activities of the trade carried on outside the United Kingdom, or
(ii) the interest is payable in the currency of a territory outside the scheduled territories, and '.

(4) In this section (including the amendments made by this section) ' the scheduled territories' means the territories specified in Schedule 1 to the Exchange Control Act, 1947 as for the time being in force.

(5) This section shall apply for income tax purposes for the year 1968–69 and subsequent years of assessment, and for corporation tax purposes to accounting periods ending on or after 6th April, 1968.—[Mr. Harold Lever.]

Brought up, and read the First time.

4.45 p.m.

Mr. Harold Lever: I beg to move, That the Clause be read a Second time.
The Clause is one of fairly wide general and commercial interest, and I had better explain something of its nature.
It is intended to secure that a trader, whether company, individual or partnership, will henceforward be entitled to a deduction against taxable trade profits for payments of interest in non-sterling currencies on moneys borrowed abroad for the purposes of a trade at home. The Clause also brings Income Tax rules into line with those of Corporation Tax by providing that, henceforward, individual traders and trading partnerships will be entitled to a deduction in respect of interest paid abroad on moneys raised for the purposes of the trade abroad without, as hitherto, any requirement that the payment of the interest must be secured upon assets of the trade abroad.
It is the first part which is the point of general interest. The second merely eliminates the old anomaly. The purpose of the first part of the Clause is to put English companies into broadly the same position as almost all other companies in other parts of the world, namely, that if they borrow money from abroad on long-term borrowing they would be entitled to charge the interest against their trading profits and, on the other hand, that they would be entitled to pay to non-residents the interest without deducting tax. Practically every other country among the great trading nations has this facility, and it seems anomalous that we should not have it. It would appear to be advantageous to make the facility available to British companies, since I have had a great many representations indicating that English companies would find this a valuable option. I stress the word "option", because no one is driving companies to borrow abroad.
Hitherto, if they borrowed abroad to finance their trade at home, they would have been penalised by being unable to deduct long-term interest from their profits for the purposes of Corporation Tax. It was particularly anomalous that this should be so since, if they borrowed at short, they had no problem. If they borrowed in a risky manner and contrary to their commercial interests at short-term, they were allowed all these facilities which will now accrue to them under the Clause at long-term. It seemed anomalous to force companies to borrow at short against their wishes when they might have preferred medium or long-term, and the Clause puts the matter right by placing long-term loans on the same footing as regards the deduction of the interest from their profits for the purposes of Corporation Tax.
There are other technical provisions with which I will not weary the House permitting the Revenue to ensure that interest payments gross are not made to United Kingdom residents but only to overseas residents. I know that the Clause will be welcome by the City. It will enable it to play an ever-increasing part in the European capital markets. There appears to be no reason why it should be restricted to playing that part on behalf only of foreign customers. It should be able to serve the needs of British industry at home in a similar way.

Mr. Patrick Jenkin: We welcome the appearance of the new Clause, which represents a significant change in the taxation of interest paid on loans overseas. It seems to recognise the reality of a good deal of overseas investment these days which is made under direct Government pressure out of money borrowed abroad rather than by the remittance of sterling from this country.
My only question arises from the way in which the Clause is drawn. The new concession applies only to loans raised outside the scheduled territories, which is a reference to territories outside the sterling area. As I understand it, the voluntary scheme for restricting overseas investment in the developed countries of the sterling area is as much part of the Government's policy as the statutory restrictions on overseas investment. Therefore, if, in order to further our export trade, a firm is encouraged to raise a loan locally instead of investing sterling overseas and it


invests it in, say, warehousing, why is it that the ability to pay the interest gross and claim the full deduction does not equally apply? In other words, is there a distinction, for the purposes of the new Clause, between the scheduled territories and countries outside? There may be a perfectly good explanation, but it does not leap to the eye and it would be helpful if we could have an explanation.
Apart from that, I warmly welcome the Clause. We appreciate the Government having decided to meet the legitimate case on behalf of many companies in the City of London and elsewhere.

Mr. Barnett: I, too, warmly welcome the new Clause. We all know, for example, of people not being willing to invest here in the past because of having to receive the interest net rather than gross. Has my hon. Friend done any calculation as to what difference this might make to the pattern of foreign investment here—for example, what the effect might be on 3½ per cent. War Loan, which foreign investors are prepared to invest in because they get the interest gross, whereas otherwise they would not be willing to do so? Has my hon. Friend considered whether there is likely to be any major variation in the pattern of investment in this direction?

Mr. Harold Lever: On the first point, about the sterling area, there are two reasons; one is a revenue reason and one is a practical reason. From the revenue point of view, it has to be subject to certain safeguards before we allow interest to be paid gross to a non-resident, or even to a non-resident, if it is payable within the sterling area. Nothing, of course, would stop a United Kingdom citizen from so arranging his affairs that his own money comes back, in certain complex circumstances, by a circular route. He might, as it were, end up getting interest on his own money gross. That is not possible in relation to non-sterling borrowing, because that must be in a foreign currency and the exchange control barrier would protect the circuitous route.
Even then, I should have been prepared to consider the point were it not for the fact that it is not normal for the sterling area to provide capital for Britain. It is the other way around. The

United Kingdom has traditionally been the supplier of capital on cheaper terms to the scheduled territories than can be raised locally.
It is unlikely that a United Kingdom firm would borrow in Australia, for example, to finance its United Kingdom business, which is the only thing affected by the new Clause. Under the existing law, one is always allowed to charge the interest if borrowing in respect of foreign assets and a foreign business. The only case which could be raised is that of a United Kingdom company seeking to borrow in Australia to finance its United Kingdom business. We think that that is unlikely, and, because of the revenue reason—on which I do not place too much emphasis—we are disinclined to open a hypothetical possibility for which there would not appear to be any practical demand on good grounds.
As to the comment of my hon. Friend the Member for Heywood and Royton (Mr. Barnett), I should make clear the nature of this concession. It is in respect of borrowing by United Kingdom companies in foreign, that is, non-sterling, currency outside the scheduled territory currency. Therefore, of course, the War Loan situation is not comparable. A foreigner can invest in it and receive his interest gross because he invests in it in external sterling, but of course it would not make it possible—perhaps one day we could consider this—for example, for a foreigner to invest in the Rolls Royce debenture and get the benefit of the Clause. Any benefit he would secure on receiving his interest gross as a nonresident would depend on a complex of circumstances but would not be affected by the Clause because, for example, the Rolls Royce debenture is couched in sterling.
This is essentially a Clause which permits United Kingdom companies which wish to borrow money abroad in non-sterling to do so and removes the disadvantage which they have previously had of not being able either to charge against the Corporation Tax or to pay the interest gross to a non-resident—

Mr. Barnett: But, for example, it might well be possible for Rolls Royce to raise its debentures in a foreign country at perhaps a lower rate of interest and pay it gross to the non-resident, in which


case it would be allowable under the Clause.

Mr. Lever: If that is what my hon. Friend has in mind, that is the purpose of the Clause—to give wider options to a United Kingdom company to be able to say, "If we want to, it would suit our book better to borrow in dollars in the Eurodollar market or in Deutschmarks in Germany or in Swiss francs", and it could do so, virtually, as easily as borrowing in England in sterling. This might affect the pattern of investment, since it would tend to unify the already vastly expanding European capital market.
One of the reasons that I welcome the Clause is that it seems odd that we should isolate ourselves by irrelevant tax mechanics from the ordinary full participation of what will develop, I think, into a total European capital market, long before the actual entry of Britain into the Common Market. Our able City financiers and bankers have played a notable part in the development of that market and it seems a unifying gesture to allow them to operate in it without unnecessary restrictions.

Mr. Barnett: Would it not be as well to extend it further by way of allowing all non-residents to receive both debenture interest and dividends as well? The principle is the same—to receive their interest gross.

Mr. Lever: On interest, there are facilities, which are not relevant to the Clause, whereby a non-resident can, in certain circumstances, get his interest gross, but I should be happy to discuss this with my hon. Friend. Even investing in sterling, he might be able to do that in certain circumstances. Dividends are a different matter, relating to the question of international practice and to what is desirable on balance in those circumstances. We already exempt non-residents from United Kingdom Income Tax on dividends. All they pay is a withholding tax, and normally the same withholding tax which our shareholders in their companies pay when they receive dividends. That seems about right. It might seem odd that we should give our dividends free of withholding tax to, for example, American investors, when we, investing in America, can suffer a 15 per

cent. withholding tax. The ding-dong of double taxation arrangements requires that we should get as much concession from the other side as we are prepared to give, and we should not voluntarily give away a withholding tax which our citizens are not receiving.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 9

DEVALUATION, &C, RELIEF

Where a United Kingdom resident company borrows money in foreign currency in order to provide funds for its business and incurs a loss on exchange when the foreign currency liability is repaid, the loss shall be a deductible expense in arriving at the company's total profits for corporation tax.—[Mr. Richard Wainwright.]

Brought up, and read the First time.

Mr. Richard Wainwright: I beg to move, That the Clause be read a Second time.
It is appropriate that we should be debating this Clause just after the previous one, since it also arises out of the great and rapidly growing importance of U.K. companies being able to borrow abroad where that is commercially expedient, as often now happens to be the case. I make no defence of the drafting, but the new Clause has been on the Paper during all the stages of this Bill and I hope that the Government have got the message—that here is a strange fiscal "No man's land" which should not be allowed to continue.
We are dealing with an important area, usually of business losses, but, I agree, conceivably of business gains, which at the moment falls between the two stools of Corporation Tax and Capital Gains Tax applied to companies. This is an area in which significant losses can be made, especially since devaluation. Yet the businessman, almost invariably to his surprise, find that this is a loss which he stands no chance of setting off against either Corporation Tax or Capital Gains Tax. There is, in fact, a substantial vacuum which is bound to lead to a sense of unfairness which will discourage firms from taking advantage of opportunities of foreign borrowing.
5.0 p.m.
The classic case which arises is that of a trading company which, with the


encouragement of the Government— indeed, in certain circumstances at the insistence of the Government—has borrowed in a foreign currency, as the House has in recent years also enabled some nationalised industries and local authorities to do. The foreign currency having been borrowed, under the exchange control procedure it will usually have been converted into sterling at the then official ruling rate—say, before devaluation of last November. It is because the loan must be repaid in foreign currency that since devaluation a loss is almost certain to be incurred.
I am aware of one example of a very large loan which was turned into the Bank of England only two days before devaluation took place, so that the borrower had only two days' use of the money at the old parity and now faces the prospect in a few years' time of repaying at a very great disadvantage. I concede that in certain circumstances, if the Bank of England takes a favourable view and if the United Kingdom company expands rapidly in a foreign location, the firm will succeed in building up some reserves in the appropriate currency with which to pay off its borrowings. But that is by no means always the case—for example when the foreign borrowing is used for home trade purposes.
Thus, we are considering losses of significance and the question is whether these losses, economically and from the point of view of accounting, should be regarded as part of the true cost of a company's operations in the hiring of money. Undoubtedly this exchange loss is part of the true cost of hiring that money. If so, I cannot see why it should not be treated as an expense for Corporation Tax purposes. I agree that, theoretically, such a loss should be spread over a number of years, possibly over the whole period of the loan, and to achieve this should not be beyond the drafting powers of the Government.
I wish to make it abundantly clear that the Clause is not designed to carry any implication of further adjustments of the sterling parity. There is a sufficient volume of cases crying out for relief arising from the 1967 devaluation and I do not intend to imply that there will be further adjustments. The Clause is

designed to deal with an unfortunate situation which has already arisen and which will cause traders some serious losses. Many traders have suffered losses to profits from devaluation in many other ways, but almost all of them at least have the comfort of knowing that these losses will be matched by their reduced Corporation Tax bill. I suggest that the House should take steps now to see that the kind of loss which I have been describing also receives its due measure of relief.

Mr. John Smith: I wish to speak particularly from the point of view of investment trusts. I should, perhaps, declare an interest, although I suspect that the majority of hon. Members have interests in investment trusts, as have very many thousands of our consituents. I hope that this is a matter which can be put right, if not now then in next year's Finance Bill.
The difficulty that arises here is yet another example of the anomalies and complexities that have flowed from the decision to tax investment trusts, as well as their shareholders, on gains and losses of this sort. Many investment trusts, with the active encouragement of the Treasury and the Bank of England, have arranged loans, for the most part dollar loans, although the Clause wisely refers to losses in all foreign currencies. They have in that way saved foreign currency for the country and have done a good service to the economy by their skill in the use of these loans.
How are losses or gains on loans of this sort assessed for tax purposes? I would like to give an illustration, but because of our procedure, both here and in Standing Committee, it is extremely difficult and cumbersome to do so orally. I believe that where we hold our Standing Committee proceedings is nothing like as important as the way in which we hold them. This is another debate in which the circulation of papers beforehand would have been useful. My hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) paid me the compliment of quoting what I said about our committee procedure when I described certain aspects of it as being like the machine on the pier which one must control, through a pane of glass,


with two knobs. We are here trying in addition to deal with an extremely technical matter without memoranda having been circulated beforehand, which makes our procedure as cumbersome as playing chess by post. Therefore, if hon. Members will forgive me, I will not give an illustration now, although I gave one in Committee.
Suffice it to say that, because one cannot offset an increase or decrease in the sterling value of a dollar or other currency loan, investment trusts are liable to be taxed on a non-existent gain; or they may be taxed on a gain when they have made a loss. The Treasury is well aware of this state of affairs and has been sympathetic to it. Although I understand that it does not wish to consider the matter in exactly the way in which the Association of Investment Trusts would like it considered, I gather, from what was said in Committee and from remarks made subsequently, that it is willing to consider it in some way.
I hope that the Government will have further comments to make on this issue and I particularly hope that some provision will be made for those investment trusts which, with the active encouragement of the Government, have taken out dollar loans which are repayable this year, so that this problem confronts them before the introduction of next year's Finance Bill. If action on this matter must be deferred for a year, I trust that provision will be made for those who must face this problem before the introduction of next year's legislation.

Mr. Diamond: I will come to the comments of the hon. Member for the Cities of London and Westminster (Mr. John Smith), but first I wish to answer the question posed by the hon. Member for Colne Valley (Mr. Richard Wainwright). He asked me not to pay undue regard to the drafting of the Clause. I assure him that his meaning is clear. His proposal is that the expense which he wishes to be allowed as deductable should be deducted in arriving at a company's total profits for Corporation Tax purposes. What he is seeking, therefore, is Corporation Tax relief.
There is already Corporation Tax relief on losses on short-term loans. We are,

therefore, concerned only with losses on long-term loans. Long-term loans are, by their nature, capital, and it would be extraordinary if anything to do with capital were a deduction for Corporation Tax purposes.
Were I to leave the matter there I would have answered the bare wording of the Clause, but I wish to go further, because the hon. Gentleman could, with respect, have made the case even stronger —and we have heard the discussions on these lines—had he referred also to relief for Capital Gains Tax. He is right in saying that with Capital Gains Tax there is a difficult situation which stems from the fact that a loan is not an asset and, therefore, the realisation of a loan, either at a profit or a loss, is not a sum assessable for Capital Gains Tax or relief from Capital Gains Tax. But the situation that the law already provides is broadly satisfactory, though not completely satisfactory to the hon. Gentleman. I shall deal with that point and, by going over the various steps, I hope to convince him that this is the case.
First of all—to repeat—very broadly, short-term loans would generally be allowable in computing trading profits, and anything relating to them and their repayment at extra cost involved would be taken in the ordinary way for Corporation Tax purposes.
In dealing with long-term, I should like, first, to deal with the situation in which a company has borrowed abroad in order to invest in productive facilities abroad. In that case, there are two reasons why one does not need to take any special steps. First, the borrowing would have been almost certainly allowed on the basis that it would be paid out of the earnings abroad, so no damage is suffered. The earnings abroad have repaid the borrowings abroad. No penalty has been suffered by the mere fact that the British currency has been devalued in the meantime. Secondly, there is an asset—or a series of assets —abroad which presumably corresponds to the borrowings abroad, and to the extent that a borrowing has to be repaid at an extra figure so do the assets when they come to be realised get repaid at an exactly proportionate figure.
The problem arises where the money has been borrowed abroad for investment


in the United Kingdom. There, the foreign borrowing would have to be repaid at some time or other at an additional cost that is not matched by anything. I have, as I said in Committee, given the matter most careful and sympathetic thought, and the reason why we cannot recommend the House to accept a Clause giving special relief is that we cannot distinguish those transactions— there is a whole variety of them—entered into, not necessarily business transactions, in which business people have suffered through devaluation.
Further, one is entitled to assume that a company borrowing abroad for investment in this country must have had its attention on the risks of borrowing abroad, and one of those risks is variation in exchange rates. So one cannot regard this as a risk which was unconsidered when the transaction was entered into—

Mr. John Hall: How would the Chief Secretary treat the case of a company which borrows large sums abroad with the intention of investing abroad but, at the insistence of the Bank of England, has to repatriate part of the proceeds back to this country—although it is still its intention to use those proceeds of the overseas loan for overseas investment—and, in the meantime, because of devaluation, incurs a loss?

5.15 p.m.

Mr. Diamond: I am sure, by the way in which the hon. Gentleman puts his question, that he has a specific case in mind where part of the investment was made abroad and part in this country. If it were split in that way—he says at the insistence of the Bank of England, but one would have to be careful about that, because it would be unusual for the Bank of England to insist that part of a borrowing abroad had to be used for investment in this country—

Mr. John Hall: I apologise for not making myself clear. In the case I put, the sum was raised abroad and part of the proceeds were repatriated here at the insistence of the Bank of England, although the intention was—and still remains—to use the whole proceeds of the loan in overseas investment.

Mr. Diamond: What the hon. Gentleman now makes clear is that, when the

loan was raised, the borrower was aware that it would, at all events for the time being, be used for investment in the United Kingdom. I can only repeat what I said in the other case, and it is related to the other cases, that the business or the individual borrowing abroad would have these problems very much in mind.
Therefore, for the very strong reasons I have given, I do not think that one can possibly contemplate accepting a Clause which seeks relief from Corporation Tax, nor can I recommend what I understand is the much more difficult case of rejecting a provision under which companies or individuals borrowing abroad for investment in this country— where, admittedly, they would not get any Capital Gains Tax relief—for the extra cost of repaying the borrowing in due course. Nor can I recommend that even such a large reduced relief should be available.
I should like now to deal with the question raised by the hon. Member for the Cities of London and Westminster Here we are dealing with investment trusts. I undertook in Committee to bring forward proposals, either at this stage or in a year's time, to give relief in appropriate cases. The appropriate cases one had in mind were those where an investment trust, for example—and an investment trust would be the main example—borrowed abroad, and borrowed for the specific purpose of investing in investments abroad, and those investments were hypothecated in regard to that borrowing, and the investments were nominated in respect of exchange control.
If nothing were done in those specific cases, the situation which would arise would be that any increase in the investments arising out of devaluation would be subject to Capital Gains Tax in the ordinary way. But the additional cost of repaying the loan would not give rise to relief for Capital Gains Tax, because a loan is not an asset and is, therefore, outside the knowledge of the Capital Gains Tax legislation.
As the hon. Gentleman said, discussions have taken place, and proposals have been put to the Investment Trust Association which, let me say straight away, is free to comment as much as it likes but is not committed, although I think that I am right in saying that, in


general, the proposals are not unacceptable to it. These proposals broadly meet the Association's point, so the Government will, in a year's time—it is obviously not possible to do it now— bring forward proposals after these matters have been discussed in full detail— because only preliminary discussions have taken place—with bodies which might be similarly affected.
I have particularly in mind life assurance companies which may have done precisely the same thing—borrowed abroad for investment in nominated securities and the investment hypothecated to the borrowing. After full discussions with such associated bodies, we will bring forward legislation next year which will give the appropriate relief.
As the hon. Gentleman has said, these are urgent matters which are happening this year, so I give the undertaking that such legislation would be retrospective. I think that it would have to be retrospective to the date of devaluation. I do not think that retrospection to 5th April is appropriate, but I will want to consider that matter more carefully. The intention is to give the relief obviously due in respect of the anomaly, which is a precise anomaly, clearly described, and would not, therefore, be mistaken for any other kind of obligation.
In those circumstances, I hope that the House will feel that I have carried out the undertaking which I gave to bring forward legislation on this occasion or in a year's time and that I have dealt adequately with the matter.

Mr. John Smith: Does the right hon. Gentleman propose to tackle only dollar loans, or loans in any foreign currency?

Mr. Diamond: The hon. Member himself put it in terms of dollar loans and, of course, dollars are the main currency under which this matter has arisen. I cannot see the distinction between borrowing in one currency and borrowing in another. I would not know by what process of law and equity one could distinguish. Therefore, once one lets oneself in for this kind of thing, one has to carry the argument to its reasonable and logical conclusion.

Mr. Barnett: I am not sure whether I have correctly understood my right hon.

Friend. I understood him to say that a loan—a loss of a debt—could not be treated in the same way as a capital gain. What is the position if a man buys shares in a small company and he also buys a debt—a loan—in that company for less than the nominal book value, because the assets of the company make it worth very little? Suppose that later he realises it in full because the company makes profits. That is a debt on which he has made profits. Is that subject to Capital Gains Tax?

Mr. Diamond: I do not see why I should act as honorary unpaid adviser to my hon. Friend, for whom I have the highest and the most affectionate regard. I am not absolutely clear what my hon. Friend has put to me, because he referred to buying shares and he then referred to acquiring a loan which is one of the assets of the company. Presumably, he has acquired the company's net assets and liabilities through acquiring the shares. Therefore, the matter would not arise in that sense.
Perhaps I may help my hon. Friend as much as I can by saying that a loan is not an asset for Capital Gains Tax purposes. This was fully considered when the Capital Gains Tax was introduced. Therefore, a profit or a loss on realising a loan is not a profit or a loss which is subject to Capital Gains Tax legislation. If my hon. Friend will convert that to the particular circumstances which he has in mind, I am sure that he will come, as he always does, to the right conclusion.

Mr. Richard Wainwright: I welcome the undertakings given by the Chief Secretary on behalf of the Government on investment trust matters which have arisen during this debate. I also welcome the fact that it has proved an opportunity for the hon. Member for Heywood and Royton (Mr. Barnett) to get some top advice.
On the substance of the new Clause, however, I am extremely disappointed that the Chief Secretary persists in trying, as it were, to sweep under the carpet a matter affecting the growing trend of United Kingdom companies borrowing abroad, which the Government have encouraged during the last two years, in


respect of the Air Corporations, the gas and electricity industries, the Greater London Council and other local authorities.
When the Chief Secretary says that we are dealing with a risk of loss which a borrower could have foreseen, I cannot see how this differentiates the matter from other items which are readily admitted as expenses for Corporation Tax or as losses for Capital Gains Tax. Many of the matters which are treated as business expenses or as a capital gains loss were risks which the taxpayer no doubt foresaw, but that does not prevent them being admissible when the risk comes all too true.
Secondly, the Chief Secretary said that there had been many sources of loss and suffering due to devaluation, implying that some of them could not be relieved because they cannot be precisely identified. That is their misfortune. In the Clause, however, we are dealing with a loss arising from devaluation, which can be precisely identified and which could, on an administrative basis, perfectly well be admitted either as a loss or as an expense.
This shows that we must return to the attack next year, but in view of the admitted difficulties of drafting on this occasion I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

New Clause 25

THRIFT PLANS

(1) Subject to the provisions of this section a payment made by an employer into a thrift plan trust fund on behalf of an employee shall not constitute taxable income of the employee entitled but shall be allowed as a deduction from the profits or gains of the employer. 'A payment' shall for this purpose include a deduction made at the request of an employee from income to which he would otherwise be entitled.
(2) Payments under subsection (1) above shall not be eligible for tax relief to the extent to which they exceed in any year of assessment in value 5 per cent. of the taxable income of the employee in that year.
(3) A thrift plan trust fund shall be a fund set up for the employees of one or more employers for the purpose of encouraging thrift amongst employees, under the rules of which at least 90 per cent. of the employees,

resident in the United Kingdom of any participating firm, are eligible for membership and which shall have been approved as such by the Commissioners of Inland Revenue.
(4) Funds held by the thrift plan trust fund shall be designated for the benefit of individual employees and may be invested in National Savings, British government securities or unit trusts and investment trusts as defined for the purpose of section 37 of the Finance Act, 1965.
(5) The income of any securities held in the thrift plan trust fund shall be exempt from income tax under the provisions of section 381 of the Income Tax Act, 1952.
(6) The rules of a thrift plan trust fund shall not restrict the right of members to withdraw the shares of the fund at any time, but save as provided in subsections (7) and (8) below, the trustees shall deduct income tax at the standard rate from any funds so withdrawn and the funds shall be assessed and charged on the recipient under Schedule E as income in the year in which they are received.
(7) On the death, disability or retirement of a member of a thrift plan trust fund, withdrawals shall not be assessable to income tax under Schedule E but shall be taxable as if the whole sum received were a chargeable gain assessable under section 20 of the Finance Act 1965.
(8) A member may at any time cease to be a member for a thrift plan trust fund and any sums thereafter withdrawn representing contributions made three years or more before the date of withdrawal shall not be assessable to income tax under Schedule E but shall be taxable as if the whole sum received were a chargeable gain assessable under section 20 of the Finance Act 1965.
(9) An individual who ceases to be a member of a thrift plan trust fund under subsection (8) above shall not be eligible for membership of the same or any other thrift plan trust fund for a period of three years from the date on which his last withdrawal of funds was made.
(10) The Commissioners of Inland Revenue may make regulations in connection with the operation of this section and in particular may specify the conditions which must be fulfilled if a thrift plan trust fund is to be approved under subsection (3) above.—[Mr. Grant.]

Brought up, and read the First time.

Mr. Anthony Grant: I beg to move, That the Clause be read a Second time.

Mr. Deputy Speaker: With this new Clause we are taking also new Clause 10— "Own as you earn", new Clause 90 "Abatement of tax payable under Schedule E", and new Clause 91 "Encouragement of personal savings for old age".

Mr. Grant: I hope that this will be the opportunity to call attention to the


need to increase savings generally at this time, because the subject of savings was never properly touched upon during the whole course of our lengthy proceedings on the Bill in Committee because of the effect of the Guillotine.
I realise that there is a sophisticated argument which, I believe, is held in elevated circles by people in the Treasury —I exclude the Financial Secretary from this charge—that increased savings have only a marginal effect on increased investment. I do not believe that this is necessarily true. Even if it were true, which it is not, there are many other compelling reasons why a dramatic change in our whole attitude to savings should take place at this time.
Even allowing, however, for a certain amount of switching when one encourages savings, I believe that an increase would provide resources for increased investment. Certainly, increased savings relieve inflationary pressure. They certainly cool down an overheated economy far more effectively than does higher taxation, which is a direct disincentive and leads to cost increases.
Indeed, if only we had applied our minds as keenly and vigorously and had spent as much time on devising ways of encouraging people to save and to be thrifty as we have spent on considering the subject of wages and pondering how we could send people to prison for getting increases in their remuneration, I believe that we would have seen a dramatic change in our economic circumstances as a result.
The other reason why an increase in savings attracts me, and, I believe, my hon. Friends on this side, is because it is essentially a voluntary act. People exercise choice in increasing their savings as much as they can, whereas the higher taxation which has been the vehicle used by the Government to curb consumer spending is essentially an act of the State over which the individual has less and less control as time goes on. Increased savings and the spirit of ownership encourage independence. They enhance the status of the individual and form an essential bulwark against the ever-increasing powers of the State as it is today.
Year after year, I recall Treasury Ministers enunciating those famous words

"More savings, less taxation". That has always been the answer which I have received when trying year after year to do something in this direction—and, of course, that is true. We all agree about it and we are at one. The opposite is not true, however, that a reduction in taxation necessarily means more savings. Alas, a reduction in taxation all too often goes into extra consumer spending and only a limited proportion—say, 10 per cent.—seems to go into increased saving. That is the evidence as I understand it.
It can be said that £100 increased savings by an individual is almost directly £100 less taxation. That is certainly my view and the view of the Financial Secretary, and it is now, I am happy to say, the view of the C.B.I. and of all the economic commentators whom I can discover. I hope that it commands support, as I believe that it does, among hon. Members on the Government benches.
5.30 p.m.
My condemnation of the Government is not of their words, but of the fact that they have not translated their words into action, nor have they attempted to do so. The proportion of our national income saved and invested is lower than that in any other developed country in Europe. It is, perhaps, not purely coincidental that our growth rate is similarly well below that of any of our competitors. It is small wonder that there is little enthusiasm for saving, because in recent years savers, so far from being encouraged, have been repeatedly clobbered by a barrage of extra taxation. They are, first, stigmatised as people who do not really work, because they are regarded as unearned income holders. Secondly, they are singled out for exceptionally heavy treatment in respect of Income Tax and Surtax. The Corporation Tax and the Capital Gains Tax have militated against increased savings.
The Post Office and various media of national savings almost verge on the level of fraud. Take, for example, the 2½ per cent. ordinary account in the Post Office. This 2½ per cent. can be contrasted with an inflation level of about 3·4 per cent. since 1910 which has gone on through the community. So a holding in the Post Office Savings Bank has been worse than a dead loss. It has been a fraud. A


more recent example is 1962 5 per cent. Exchequer Stock redeemable in 1967. It is called 5 per cent. Let us calculate the real rate of return. Allowing for inflation, a holder who pays tax at the standard rate gets a derisory figure in real return of about 1½5 per cent.
These are the many reasons why there has been little or no incentive or encouragement to save in the community. Nevertheless, there is a latent desire to do so, as can be instanced by the enthusiasm there was for the growth of investment clubs and the dramatic increase in unit trusts. It is clear that our existing methods are hopelessly inadequate and that something dramatic is required. I believe that one of the methods whereby this can come about is through thrift schemes such as that which I outlined in the Clause and for which direct fiscal concessions are necessary.
There are many ways in which this can be done. There are the ways adopted in Germany and in France. The Liberals make a suggestion in a new Clause which has been grouped with this one. That suggestion is a good idea, and I have no objection to it. My hon. Friend the Member for St. Ives (Mr. Nott) has tabled details of a plan thought out, I believe, by Mr. Lionel Barras very imaginatively. There are many ways of doing it.
Our Clause is based upon the United States' tried and proven method of company thrift schemes. I pay tribute to the work of Mr. John Chown. He has made a great study of the United States' method of thrift schemes and has contributed so much to the drafting of the Clause. It is a scheme which the Wider Share Ownership Council, an all-party organisation of which I am a member, supports as the most suitable vehicle. The Financial Secretary was a distinguished member of that organisation until he fell among bad friends and into evil ways and joined the Government.
The thrift plan that we have outlined envisages a scheme set up by individual companies, be they great or small, under which payments are made into a fund by the employer. Payments made by the employer into this fund are not to be regarded as the taxable income of the employee up to a limit of 5 per cent. of the employee's income for that year. Equally, the payments made by the em-

ployer are to be allowed as a deduction from his profits or gains for tax purposes.
To be approved under the Clause schemes have to be open to not less than 90 per cent. of employees who wish to participate. The fund is invested in National Savings, British Government securities, unit trusts, or investment trusts. Perhaps I have been a little timid and I would not object to this being widened into a much greater range of equity shareholdings. As a modest move forward, I commend it on those lines.
The one way in which I differ in this scheme from that in operation in America is that I provide for withdrawal, not only on death or retirement. I provide for an employee to be able to withdraw from the scheme after he has been in it for three years, provided that he cannot join the scheme again for another three years. I believe that this is necessary to retain flexibility and to enable movement of labour between one company and another. I think that the United States scheme is a little rigid in that respect. Lastly, I have provided the long-stop. The hallmark of respectability for any scheme is that it must be approved by the Commissioners of Inland Revenue.
I do not regard this scheme necessarily as holy writ; nor do I think that the drafting is absolutely perfect. A change in savings attitude in Britain is essential. A radical approach is essential. I believe that the Clause is a novel step in that direction which, if accepted by the Government would, in the words of Mr. Harold Wincott, show that they have had a
sudden attack of common sense".

Mr. F. A. Burden: If a member of a thrift club operating in a group of companies leaves one company in the group and joins another company in the group, will he then be debarred from joining for another three years?

Mr. Grant: I should have to take legal advice on that, but I think that he probably would be. We have provided the three-year period. This is a point of detail. I would not mind the period being extended or reduced, as was thought desirable. There must be flexibility in these schemes. It is essential that any scheme should be based on the company or on the individual and not on some great rambling bureaucratic central body


such as C.B.I. has in mind. It is vital that it should be geared to the wage packet. It is vital that fiscal concessions should be given by the Government to enable it to get off to a reasonable start.
The scheme embodied in the Clause fulfils all these criteria and has been shown to work in America. For these reasons, and because I believe that it is directly relevant to our present economic difficulties, and, above all, because it is wholly in accordance with my philosophy of a free society based upon individual ownership, I commend it to the House.

Mr. Barnett: All of us are in favour of increasing savings and, in particular, real net savings—that is, not simply switching from one form of savings to another. That is why I supported the original idea of the right hon. Member for Enfield, West (Mr. Iain Macleod) of a save-as-you-earn scheme. I believe this is an idea well worth following up.
However, the Clause highlights the extent of the problem. The right hon. Member and the hon. Member for Harrow, Central (Mr. Grant) have obviously devoted a great deal of thought to the problem of how this could be done. We understand from the hon. Gentleman that the scheme contained within the Clause is based on the United States scheme. I believe that the scheme as shown in the Clause is an administrative nightmare.
We hear constant complaints in the House about the complexities of our tax system. There are many of them. The Clause shows that an enormous number of administrative problems would arise. I am not judging this merely by the drafting of the Clause. Nor do I mean that problems would arise for the Inland Revenue only. I am thinking that the 5 per cent. expressed weekly, if we are talking about the small saver, could become a problem of under-payment or over-payment of tax throughout the course of a year, which would be administratively a little difficult. However, that is only one small matter.
Many other factors would crop up. What would happen on the transfer of job? What is much worse is the administrative burden which the thrift idea plan, as outlined in the Clause, would place on companies, particularly smaller companies, even if they grouped together. I

think of the complexities which could arise on the transfer of employees, with withdrawals, and with apportionments under some of the subsections as between one employee and another, giving rise to problems as to sharing of interests or of a cipital gain on reinvestment. Other questions which it would be difficult to answer would be when disability arose, when retirement occurred and when a person was eligible to join a scheme. For smaller firms, at any rate, it would be an extremely difficult administrative task, to say the least.
There would also be administrative problems for the Inland Revenue itself. These would include an individual's tax liability arising out of withdrawals and amounts put in in any given year, and total salary at the end of the year when individual weeks were not exactly similar because of bonuses and short time and so on. All sorts of complexities could arise for the Inland Revenue.

Mr. Grant: Before the hon. Gentleman says too much about administrative difficulties, let me say that I have always believed that if the will is there, we have a Government to overcome the difficulties. I am not bothered about the Inland Revenue's difficulties. Secondly, the hon. Gentleman overlooks the fact that the scheme would be entirely voluntary. Nobody would compel a company to undertake it.

Mr. Barnett: We have to take account of administrative problems all round and I do not think that any of us would want to introduce a scheme which caused enormous administrative difficulties to anybody, particularly the Inland Revenue, which has a burdensome enough task as it is.

Mr. Kenneth Baker: Is not the hon. Gentleman aware that the arguments of administrative difficulty and inconvenience which he has just postulated were exactly the arguments used 30, 40, or 50 years ago, when companies were first thinking about setting up pension funds?

Mr. Barnett: The administrative problems which I am postulating are exactly those which we have heard used about other schemes by hon. Members opposite in the last few years. That is why I am


surprised that they are prepared to consider such an extremely complex scheme. The Inland Revenue would have the problem of deciding how much should be subject to Capital Gains Tax and how much to Income Tax and to make an apportionment in any given year. We simply cannot ignore the administrative problems.
We have also to consider whether such a scheme would be attractive to a saver. Personally, I am in favour of making it easy for an employee to have a deduction from his wage in respect of savings, but it should be clear to him what he is to get at the end of the day. For example, an employee earning £1,000 a year, under the terms of the Clause would save 5 per cent., or an average of £50 a year. If he were to put £50 a year into a life assurance policy with a respectable company, so that the policy matured fairly early, he would have a policy of £1,000 with profits and bonuses which might bring him somewhere near £2,000 at the end of the day, and he would also have cover of £1,000 plus bonuses during the course of his life. Under the terms of this scheme, he would have the additional disadvantage of not having the cover and he would also have a smaller net return, having regard to the fact that the final sum on realisation would be subject to Capital Gains Tax. Assuming that he went to the trouble of working out the computation of what he would get, such an employee would find that the net return to him was rather better in other schemes.
Something much better than this type of Clause is required. This scheme is too complicated and not sufficiently attractive to an employee. Such a scheme must be administered nationally rather than by small and medium-sized individual firms which would not have the skills required to deal with the management of investment such as the large insurance companies have and which have enabled them to build up the sort of bonuses which they now pay. I would rather that the administration were handled nationally, so that there was better management and a better return for those concerned. It might be easier to deal with it by way of a certificate issued weekly to the employee who had a certain amount deducted from his wage, with the certificate cashable at an

amount which became larger the further away from the date of issue.
5.45 p.m.
Basically, I am sympathetic to this idea, but the scheme is administratively difficult and not sufficiently attractive. Nevertheless, it is valuable to have a debate of this description and the hon. Gentleman has done the House a service by initiating it and enabling us to expose the limitations open to us in any scheme for improving savings and getting new net savings.
We underestimate the ingenuity of past Chancellors of the Exchequer who have gone to enormous lengths to find methods of improving savings and meeting the wishes of all kinds of savers, from those in the high tax brackets to those in the lowest who for £1 can buy a National Savings Certificate in a Post Office, where it is easily obtainable, or who can buy Premium Bonds and so on. Former Chancellors have considered and thought up many schemes. It is important to recognise how limited is the scope now left. The Clause emphasises that limitation, because the hon. Gentleman and the right hon. Gentleman have clearly thought a great deal about the idea, and yet have been able to come up only with a Clause like this which, when examined in detail, goes to show just how difficult is the problem in practice, although at first sight the idea seems attractive.
It is not possible to say whether the scheme would be too costly to the Exchequer. Clearly, one could have a savings scheme by which it would be easy to persuade people to save, but which was so costly to the Exchequer that it would not be worth while. It is not possible to say whether the Clause would be too costly, because we do not know how much would be invested by employees, or how quickly withdrawals would be made. However, that does not matter because, even allowing for the fact that only two-fifths of the premiums for a life assurance policy are allowable for tax, whereas this scheme would allow the whole against tax, the return on such a policy would be better.
That is clearly important in the consideration of a scheme of this description or something like it. It is not possible for a small group of people without all the facilities available to a Government to work out all the complexities which


might be involved. I gather from the Press and elsewhere that the C.B.I. scheme is being favourably considered by the Government, and I hope that they will give it a good deal of thought and that before next year a rather simpler scheme will be brought forward, although with the same purpose, because we can all support the purpose.

Mr. Henry Clark: The House owes a debt of gratitude to my hon. Friend the Member for Harrow, Central (Mr. Grant) for introducing this subject, and one must compliment him on the work which he has done on his savings scheme. I wish to direct my remarks not to his excellent scheme but to my own which is outlined in new Clause No. 91, an incentive to saving which would complement any of the schemes which have been put forward. We suggest that there should be £100 of unearned income tax-free for everybody over 60. This would set a target to which savers of any income could aspire. I believe that setting a target for the future is extremely important, because financial laws and taxes have created a large number of psychological barriers to having, even for the small saver.
The figures contained in new Clause 91 are not arbitrary but were chosen with care. We chose £100 as the income which could be earned from the kind of capital sum which any family could save with reasonable thrift, over a reasonable period. It is about equivalent to the income one would get if instead of buying a house one saved one's money. In justice, every person over 60 who has saved that money should be able to enjoy it Income Tax free.
The age of 60 has been chosen so as not to coincide with the old-age pension age for men. Too many people, particularly many younger people, regard the age of 65 and the old-age pension as a kind of Nirvana to which they look forward, when everything will be all right and all that they will have to do is to collect their money from the Post Office. Although they know very well that the pension is not adequate today, they believe, as a result of what is said by politicians on both sides, that there will be a time in the 1970s or 1980s when it will keep us all in comfort.
Far too many fail to realise that no matter to what level we raise the pension, because it is universal, it will provide only the floor level of living standards. Those who want to keep up with the Joneses, or be a little better, can do so only by saving before they become too old to do so. The two figures have been chosen because, as far as I can estimate—and I got no Treasury help when I put down a Question—the cost of the new Clause would be about £20 million per annum.

The Chancellor of the Exchequer (Mr. Roy Jenkins): The Chancellor of the Exchequer (Mr. Roy Jenkins) indicated dissent.

Mr. Clark: I see the Chancellor shaking his head. It is certainly not an excessively expensive scheme and would start people saving. The money would go to those who deserved it, very often to those who had invested in War Loan and house property to let—two of the worst and commonest investments among the lower income groups. This target could fit in with any of the several proposed schemes.
My hon. Friend the Member for Harrow, Central, with admirable brevity, went through the arguments for saving. I was happy too to hear a favourable comment from the hon. Member for Heywood and Royton (Mr. Barnett). To some extent I agree with him that the administrative complications are considerable, but none of us can disagree about the tremendous advantage that would accrue to the economy by an increased level of personal savings.
We all know that Lord Keynes in 1936 voiced considerable criticism of personal savings and sinking funds. I believe that some of the Keynesian doctrine of 1936 has stuck with Labour to this day. It is interesting to see that Lord Keynes changed his tune remarkably quickly and that by 1939 he was saying that in the new circumstances:
… savings will again serve social purposes and private prudence will coincide with public interest.
I do not think that there is any reason to doubt that what he said then is equally true today.
When we know that personal savings can replace increased taxation, we must tie that to the remark attributed to the Chancellor in today's papers, that this country is reaching its limit of taxable


capacity. I see that he is to say this on television tonight. If we cannot raise taxes further to reduce consumption, there is only one other hope and that is savings. The Chancellor told us this in his Budget speech, and then proceeded to do virtually nothing about it. He cannot honestly claim that the increase in Premium Bonds, and one or two other adjustments in National Savings, will really change the national propensity to consume to any considerable extent.
The tragic thing about the Budget is that it is likely, more than anything else, to reduce savings. Increased taxes will cut savings more than they will cut consumption. A high proportion of families will reduce their bank balances, draw on capital, increase their debts to the shops, to try to maintain their living standards. The proportion of income spent on consumption may be higher in 1968 than at any other time. We look to the Chancellor to give us a satisfactory answer and explain more clearly than he has done so far why he did not adopt a level of incentives for savings in the Budget.
The other side of the House does not like capitalism in the old sense of the word, but no one can have any objection to capital if it is spread broadly to every family and homestead. Everyone knows that £500 invested in a reasonably reliable way is a better hedge against worry and bad luck than any social security scheme. In Northern Ireland, where there is widespread ownership of land, and where usually one person in every family owns land, the effect has been to help Northern Ireland very considerably during the real social difficulties of unemployment, suffered over the last 30 years.
I take the hon. Member for Heywood and Royton to task to some extent, because it is not the function of this House to discuss theoretically what will or will not make people save. We all have our own pet schemes. Mine is that we should let people save from taxed income, and get a tax refund, rather than save from income before tax and get a tax rebate. The sum of £1 a week saved from taxed income, with a refund, would become £70 or £80 a year. This would be a real incentive and similar to the scheme whereby people make gifts to a charity on a seven-year covenant. I personally feel particularly generous when I see my

meagre subscriptions to a charity boosted by the tax reclaimed by that charity.
It is pointless for us to sit here talking, it is not a matter which we or the Treasury can decide. To persuade the British public to save we have to get the product right; we have to have a flexible and broad scheme, to suit all income groups and to appeal to the huge body of non-savers whose earnings are below £1,500 a year. To get this scheme right we have to appeal to the marketing industry. We have to find out by research, what kind of savings will appeal before introducing any scheme. I hope that before the Chancellor introduces a scheme, as he inevitably must next year, if he is to keep the country steady, he will do a great deal of market research.
I conclude with a plea for sympathetic treatment by the Chancellor of the various schemes put forward, particularly that suggested by myself and my hon. Friends. I suggest that, if we can create a property-owning democracy—a capital-owning democracy—we shall create a country and society with the morale to stand up to the problems of the modern age.

6.0 p.m.

Mr. Eric Lubbock: I shall not add to what the hon. Member for Harrow, Central (Mr. Grant) said about the virtues of savings, except to draw attention to a recent article in The Times by Francis Cairncross, who pointed out that one of the best reasons for encouraging savings is that it means less taxation. The article added that if we had been saving as high a proportion of post-tax income as in 1951, the Chancellor would not have needed to take £560 million out of the economy in his Budget. That is the strongest possible reason for encouraging savings in a more radical way.
I therefore deplore the remarks made by the hon. Member for Heywood and Royton (Mr. Barnett). Every time a scheme of this nature is put up, he casts doubt upon the principle, not because he disagrees with it—at one point in his remarks he accepted the idea—but because it is administratively unworkable. He knows very well that any hon. Member trying to put forward a scheme like this can only deal with principles. He cannot do other.

Mr. Baraett: The hon. Gentleman says that I do this every time. Can he quote the last occasion? Can he say on how many other occasions I have done this?

Mr. Lubbock: On 14th June, 1967, the hon. Member made a sarcastic speech about a scheme put forward by my hon. Friend the Member for Colne Valley (Mr. Richard Wainwright). He condemned it in much the same words as he has just used. He said that the scheme was administratively impracticable. This afternoon, he said that the scheme in new Clause 25 would be an administrative nightmare. But the only difficulties he pointed out were in relation to the P.A.Y.E. system, saying that, if people withdrew money and put it into savings schemes of the kind proposed, the Inland Revenue would have to take this into account in code numbering.
But the Inland Revenue has faced this problem for many years. What does he think happens in the case of a scheme of payment by results where, according to the state of the economy and the fortunes of his company, a worker's earnings may fluctuate widely? A code number may be allotted to him at the beginning of the year which, unfortunately, because of the Chancellor's other actions to reduce consumption, may not be in accordance with his actual earnings. The Chancellor may decide to increase Purchase Tax on cars so that earnings in the motor industry decline because there is no overtime and perhaps there is even short time working. The code number then has to be adjusted.
Does the hon. Gentleman really think that a system of P.A.Y.E. which can deal with these fluctuations would be incapable of accommodating a scheme for small savings such as that proposed by new Clause 25 or by my hon. Friend last year, about which the hon. Gentleman was so scathing? It is a pity that the hon. Gentleman did not make a sensible contribution about the principle of contractual savings instead of trying to make niggling details about new Clause 25, into which the hon. Member for Harrow, Central has put a great deal of thought and work, for which the House should be indebted to him.
There is a lot to be said for examining the experience of the United States and

I also draw the Chancellor's attention to the experience in West Germany over the last few years, which also has something to teach us. It was decided there some years ago that a tax concession should be given to contractual savings. Because the maximum benefit would be felt by those who paid most tax if the scheme were done by means of a tax allowance. it was decided, in order to stimulate savings by the lowest paid workers, who were not paying the standard rate of tax. to have higher interest rates for contractual savings than for the normal avenues of savings which had been open before then.
The West German Government offered a premium of 46 per cent. on top of the normal rate of interest for savings which were kept in a special account for a period of five years or more. They refined the scheme because it was found that this inducement appealed more to the executives and the staff than to the manual workers. In 1964, they found that only 30 per cent. of new savings accounts opened under the 1959 law were those of manual workers, and as the manual workers were numerically by far the largest potential market for the scheme, this indicated that only a small proportion of them were being attracted to it—a much smaller proportion than that of the salaried employees, who formed 49 per cent. of the total.
In 1965, therefore, the West German Government extended the principle of contracutal savings so as to permit collective arrangements negotiated between workers and managements for special accounts into which the employer could pay up to 312 DM per annum for each employee on his books. These payments were allowable deductions from the company's profits for tax purposes, but did not count as part of the income in the hands of the recipient if he left the money for the period of five years.
New Clause 10 contains many of these principles, although, of course, there are differences in detail between its scheme and the West German scheme. Under subsection (3)(a), it would be open to an employer to open a special savings account on behalf of an employee. This would permit collective arrangements between management and unions. The amount which could be deposited in the


account each year would be very much larger under our scheme but, on the other hand, the beneficiary would not escape tax altogether even if he left the money in for a very long time. When he came to withdraw the money, he would pay Income Tax as if he had received it in the year of withdrawal.
Under subsection (4), the employee would not be liable to Capital Gains Tax on the amount which could be secured by his deposit in the special account. As my hon. Friend the Member for Colne Valley pointed out last year, this would provide an incentive to the employee, either individually or collectively, to put money away during periods when he was earning a good wage or salary and only withdraw it when he faced a period of adversity such as sickness or unemployment, when the effective rate of tax would be much lower and the money withdrawn would count as part of his income during the year of withdrawal.
It is true that new Clause 10 would not provide for higher rates of interest to be paid on money deposited under the scheme, which is a feature of the German law, but this, I think, would be an added refinement which we might consider as a further improvement of the proposal. If money is to be invested for long periods, there is every justification for offering a bonus, as we already recognise in the case of National Savings Certificates, although the bonus there is not large enough to make it worth while investing in them in present circumstances.
Sir Miles Thomas has been trying to persuade the Chancellor that interest rates of 8 to 9 per cent. should be offered where savings are left in for at least five years. The C.B.I. has proposed a variety of methods for retaining long term savings, and much higher interest rates are only one example. Both the C.B.I. and the T.U.C. have been advocating schemes which have something in common with new Clause 10. For many years, we have called for additional savings and have paid tribute to the National Savings Movement and to the most dedicated and unselfish work done by thousands of volunteers. But we are not prepared to give them what is needed to enable them to extend national savings to the extent necessary in the present climate.
I have attended annual rallies of the National Savings committee in my constituency over many years. I attended one in March this year. I am always very impressed by the dedicated spirit of the volunteers who are prepared to give up so much time and effort in the cause of savings to help Britain in this most practical way. In the last few years they have been struggling against heavy odds when trying to persuade the small saver that it is worth while putting his money aside. When we look back on the history of savings ever since the last war, we see that hundreds of thousands, perhaps millions, have been defrauded by inflation and rising interest rates.
If the Government really want to help small savers to put the economy straight, they have to give the savings movement and others concerned the proper tools to do the job. A scheme for contractual savings along the lines of our new Clause or that proposed by the hon. Member for Harrow, Central would do a great deal to restore the morale of workers in the National Savings movement and would allow them to make the significant contribution which they are ready and anxious to make.

Mr. Sheldon: What unites the whole House is the obvious need for a reassessment of all we are doing with reference to savings. I shall not spend time discussing the details of various schemes. It is a pity that we are discussing minutiae in matters which we are not well fitted to judge and which the Treasury can examine very closely. It can then come up with a workable scheme if it agrees that the principle is right. We should be discussing the principle rather than the details.
Not only do we need to attract new savings, but it is also extremely important to retain present savings. If we look at the figures of slowly rising savings, we see that they present a complacent picture. Even our slowly rising trend of savings can show an actual drop in real terms. This is not just because of inflation, important though that may be, but because of the growth in real incomes which has been taking place.
If this had been reflected in increased savings it would have been no more than what we should have expected. If we take the increase in inflation at about 3 per cent. per year and the


increase in growth of incomes in real terms at about 2 per cent. per year, we should have about 5 per cent. increase in savings, and that, obviously, we have not had. We tend to view the picture rather too complacently.
We need not only to think in terms of new schemes, but to find ways of making present ones more attractive. Hon. Members are queuing up with pet ideas but if we are to think in terms of a radical look at savings probably the first thing we should do should be to tackle the whole question of confidence in the value of savings which will be obtained by the person who invests his money and hopes to see an appreciable return at the end of a given period. Because of this it may be that to get any movement off the ground and to reverse the process which has been going on for so long through lack of confidence which, unfortunately, has been continuing, we shall have to think in terms of some sort of tax incentive.
Although I am unwilling to accept ideas of tax relief in general for this kind of saving, mainly because it is undiscriminating and helps the better-off more than the less well-off, there is a strong case at this time to give a boost to confidence and to have a new look at saving so that people can see a definite return and a chance of increasing their wealth in this way to their own good and that of the country.
6.15 p.m.
There is one important point which we must not lose sight of. We are getting very near to a situation of not having a net interest rate for savings, but almost a reverse interest. This is important because people are becoming more sophisticated about it. They are beginning to understand it and to understand that with present levels of interest, even though they are high, by the time tax is paid there is not much difference between what is left and the level of inflation. If we take the fixed interest and deduct taxation charges, what is left is not much different from the level of inflation rising each year and so the capital of the saver does not appreciate and, in certain circumstances, may actually diminish.
It is becoming increasingly understood by people—not only by those knowledgeable in these matters but generally—that

something is needed to reverse this attitude to savings. It may be that we shall have to think in terms of tax concessions to give a new impetus to the whole movement.
Whether the schemes which have been discussed this afternoon are used is not important; what is important is that new ideas are necessary. I hope that my right hon. Friend the Chancellor will consider this.

Mr. John Smith: I found listening to the hon. Member for Heywood and Royton (Mr. Barnett) a very lowering experience. He had a difficulty for every solution. I had no idea that he was such an abominable no-man; I can only imagine that he is limbering up for the bottom job on the Treasury Bench. His other half, his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) did a great deal better by addressing himself to questions of principle instead of giving the Government an opportunity of saying, "We have heard of a great many schemes, all different and each contradicting each other and therefore nothing can be done."
But I am sure that both hon. Members must recognise that it has been tragic that in this Budget, of all Budgets, there was no savings incentive. Well, there was one, the rate of prize money on Premium Bonds was increasesd from4½ per cent. to 4⅞ per cent., but there was no proper incentive to saving. Instead, we were taxed again. We were treated, once again, like a train of pack mules trudging our way through the sands of time. We had extra taxation and in some cases doctrinaire taxation. I welcome particularly what my hon. Friend the Member for Harrow, Central (Mr. Grant) said about choice, that savings are worth it, even ignoring financial reasons, because they give people a choice which they do not get with taxation.
The whole Budget as it proved was an incentive not to savings, but to extravagance.

Mr. Speaker: Order. We are not discussing the Budget now. The hon. Member must come to the schemes on the new Clauses.

Mr. Smith: I beg your pardon, Mr. Speaker. I was led astray because I was the only hon. Member who was not called in the debate on Second Reading—

Mr. Speaker: Order. That is interesting, but it is no excuse.

Mr. Smith: —and, therefore, I have a suppressed Second Reading speech inside me. If savings had been properly encouraged in the way in which all these new Clauses would ensure, the Chancellor could have avoided these heavy increases in taxation. He said that he had to impose sacrifices; that he had to take purchasing power out of the economy, but in my opinion he could have coaxed it out.
Chancellors, by nature, cannot like savings, because they make the control of consumption a great deal harder, as we are seeing now. But savings and tax are complementary. Indeed, the Chancellor said so. He said that:
if every working person in this country were to save 1s. a day, this would bring in over £400 mill on in a year and would go a long way towards solving our economic difficulties —and oar taxation problems."—[OFFICIAL REPORT, 19th March, 1968; Vol. 761, c. 270.]
If the Government put into savings a fraction of the thought and energy that they put into taxation our burdens could be greatly lightened. Indeed, savings can do the job of taxes without increasing the cost of living, as taxes do, and as, indeed, this Finance Bill will do by 2 per cent. we are told.
Instead of legislation on the lines of these new Clauses the Chancellor simply uttered the now customary ritual platitudes about the National Savings Movement, though I think that he went a little far in saying that
this year offers a special opportunity in the field of national savings
when the value of money is, we are told, going to fall by at least 5 per cent. I endorse what has been said by several other hon. Members about National Savings, though I do not agree that they are a fraud. That is much too strong a word to use. The National Savings Movement at the moment is simply a way of tearing up your money slowly.
But National Savings can be reconstructed if none of the new Clauses or similar schemes find favour with the Chancellor. There is nothing wrong with fixed-interest investment. We have heard a great deal about the cult of equity shares, but there is nothing wrong with fixed-interest investment, providing that

the rate on such investment is high enough. As was said, there should be allowance in the rate for the effect of inflation.
If National Savings carried a rate of 7 or 8 per cent., reflecting current interest rates, plus a net addition of perhaps 3 or 4 per cent. for inflation, they would be perfectly attractive, and reasonable to put forward to the public. But if we are not to have that type of scheme, but are to have instead the types of scheme put forward in these new Clauses, let us remember that, whichever we are to have, savings have been the chief instrument of civilisation. They have been the backing for our position in the world, as the 19th century, indeed, recognised, with, to my mind, its noble ideal of freedom from dependence; from dependence on other people, dependence on charity; and, particularly, from dependence on the State.
It is time for a return to that great Victorian ideal built on savings. What is wanted is a savings policy. By that I mean incentive to save, ability to save, and faith in savings. That involves far more than can be put into a Finance Bill. Moreover, we want not only a savings policy, but a savings scheme. I thought that the Chancellor was a bit feeble about this. He said that no satisfactory scheme could be discovered. But an arrangement very similar to what is required already exists. The savings scheme which we need, in the absence of a revitalised National Savings Movement, should be one based on ordinary shares; and here we must keep in mind a great danger to saving and investment of all kinds.
We have seen people lose faith in fixed interest investment and turn to equity investment. We are now seeing them lose faith in equity investments and turning to non-conventional savings media altogether. People are turning to investment in chattels, for example, which is totally unproductive for the country. Therefore, I feel that any schemes which are put forward should be well based on equity shares.
Secondly, such a scheme should—

Mr. Speaker: Order. The hon. Member must come to the schemes in the four new Clauses that we are discussing.

Mr. Smith: I think that investment in ordinary shares is provided for in these new Clauses, although one of them does envisage the alternative—

Mr. Lubbock: Perhaps I can help. If the hon. Member for the Cities of London and Westminster (Mr. John Smith) looks at subsection (3)(b) of the new Clause 10 he will see that the amounts may be in
money, stocks and shares or other securities.
There is a limitation in the Clause. It does not include chattels.

Mr. Smith: The second aspect of these new Clauses which I welcome is that they are open only to savings from earned income. Thirdly, they must be more attractive—and this is most important—to remain in than to cash your savings and come out of. Those to my mind are the criteria of a successful savings scheme.
If the Government feel that is all too difficult, as was set forth by the hon. Member for Heywood and Royton (Mr. Barnett), I would point out that there is already in existence, approved by the Revenue and the Government, a parallel scheme of this kind, namely, the existing equity-based retirement annuities for the self-employed, with which the Revenue is familiar. They could be used as a model for a savings scheme on the lines of these new Clauses, or, if they are not acceptable to the Government, for a similar scheme.
I am not, in fact, in favour of the State setting up a scheme of its own. It would be better if the State simply set the framework for schemes arranged by other people—be the ring master, as it were. But I would point out that, since the Chancellor spoke in the Budget debate, the advent of the Post Office giro system will make a State savings scheme a great deal easier to administer.
The Chancellor, in his Budget speech, said that he would consider suggestions to modify the problems which owners of dollar securities have when they realise them. Will he, on that analogy, consider suggestions for a National Savings scheme? To do that would be far better than to dally as we have done, with decadent schemes such as the national lottery, which are only suitable for the sort of dead-beat and down-and-

out countries that make fresh issues of postage stamps every three weeks or so. If we could get away from that approach to savings, and concentrate on something with the solidity of the 19th century schemes, which were such an enormous success, we should give the Chancellor the pleasure, in subsequent Budgets, should he come to open any, of reducing taxation.

6.30 p.m.

Mr. Kenneth Baker: I strongly support the new Clause. This is the first occasion, during the many hours spent on the Bill, that we have had the opportunity of discussing savings as such. The debate, before you, Mr. Speaker, resumed the Chair, was rather wide ranging on the principle: to what extent should the Government encourage savings? We on this side of the House are not convinced that the Government put this at the top of their list of priorities, and the earlier speeches seemed to indicate that. It should not be necessary for us to argue—and I should be out of order if I attempted to do so— the case for greater savings in our economy, but it is a fact of economic history—

Sir Gerald Nabarro: It would not be out of order.

Mr. Baker: I am grateful to my hon. Friend for that ruling.

Sir G. Nabarro: On a point of order. Mr. Speaker, in your absence we had a debate on the principles of National Savings and their application to the three alternative schemes. If it is now to be ruled out of order for any speaker to talk about the principles of savings, that will stand the whole of this debate—or at any rate its earlier stages—on its head. For the benefit of anybody who may catch your eye later will you now rule on whether we may talk about the principles of National Savings, their influence on the levels of direct and indirect taxation, with which they are indissolubly linked, and also the content of these three Clauses?

Mr. Speaker: The hon. Member must wait until he makes his speech. I shall then rule whether he is in order. These Clauses seek to give certain tax concessions to savings. As the hon. Member said at the beginning of his point of order it is in order to talk about savings,


their incidence, and the reason why they should benefit from the various Clauses concerning them.

Mr. Baker: The point I was making was that economic growth depends to a large extent on the percentage of the gross national product which goes into personal savings. One of the characteristics of the 1950s was the continual rise in personal savings as a percentage of the gross national product. That rise was dramatically checked from about 1964, and there is evidence of this in the recent Report to the Bank for International Settlements. This is not a bank of gnomes but one which has been a very good friend of the Government for the last three and a half to four years.
The Report says that for the last three and a half years
Total savings did not keep pace with the rise in home investments and this was reflected in the external deficit.
I hope that that short quotation puts the whole question of savings into perspective, because we on this side of the House put it at the top of our list. One of the great disappointments of the Budget is that the Chancellor neglected and rejected this wonderful opportunity, in 1968, to do something imaginative about savings and to adopt a new approach to encourage new savings.
The philosophy and reasoning behind the new Clauses—and particularly new Clause 25—is that they will provide an imaginative approach. Far from introducing a new approach, the Finance Bill generally introduces disincentives to saving by the investment levy, the aggregation of children's unearned income, and the tighter rules—

Mr. Speaker: Order. The hon. Member is getting wide of what is a fairly wide debate.

Mr. Baker: I appreciate your Ruling, Mr. Speaker. I was making the point that the Government are not very sympathetic to this issue. They have introduced disincentives. They have done nothing to hack away the disincentives which already exist. The most important of these is the distinction which still exists between earned income and unearned income and I should like to see this distinction removed and unearned income called savings income.
I commend new Clause 25 to the House for four specific reasons. First, it will bring in new savings, thus tapping a market which generally has not been tapped before in an effective and imaginative way. Secondly, the scheme is voluntary. Thirdly, it introduces an employer/ employee relationship such as that which exists in pension schemes operating in most companies. Fourthly, it will encourage capital formation, and this is a desirable end to all taxation. There is not enough formation of capital in this country.
Indeed, the redistribution of income is taking far too long. I agree with that politician who said:
As a general rule, nobody has money who ought to have it.
I am glad that two hon. Gentlemen opposite agree with what I think is one of the better aphorisms of Benjamin Disraeli.
I ask my hon. Friend the Member for Harrow, Central (Mr. Grant) to change the name "thrift scheme". Thrift is an old-fashioned word. Its synonyms are meagre, unlavish, cheeseparing and self-denial, and anybody who wants to sell a new exciting scheme will not do it with the name "thrift". We want "Savings with Profits", and ideas like that.
I believe the case has been argued most strongly that we should have a scheme of that sort. I believe that what, in effect, is the American scheme would be most useful, and I hope that the Chancellor will consider it sympathetically.

Mr. Roy Jenkins: Without wishing to bring the debate to a close, I wonder whether I might be permitted to intervene for a short time at this stage. The hon. Member for Harrow, Central (Mr. Grant) and others have raised a most important subject, and I am, therefore, anxious to say a few words in reply.
We have had a fairly wide-ranging discussion, not perhaps, under your guidance, Mr. Speaker, as wide-ranging as some hon. Gentlemen would have liked, but, nevertheless, wide-ranging and useful, and I think there has been a considerable degree of consensus between us about the desire to stimulate savings. I attach the greatest possible importance to savings, for any Chancellor who did not do so would be extremely foolish. I assure


the hon. Member for Antrim, North (Mr. Henry Clark) that I regard the present circumstances as making the later Keynes a good deal more appropriate than the middle Keynes, both of which he quoted.
The methods and techniques for achieving these objects are, I think, an extremely valuable subject for study and debate in the House. I do not think that any one can claim to have found answers of complete validity in the changing social and economic climate in which these have to be viewed. They are problems which have faced every Government in this country in the post-war era, and the Governments of every developed and developing country encounter similar difficulties in stimulating and maintaining a high level of voluntary personal saving.
Inevitably, therefore, one has to begin any survey of the possibilities in this field by defining some of the limits of what is fair and practical, and what is relevant to the economic circumstances of today and the next few years.
Nor do I think, even though I attach great importance to savings, that one can really take the view, as the hon. Member for the Cities of London and Westminster (Mr. John Smith) seemed almost to be suggesting towards the end of his speech, that savings can be a substitute for taxation. He spoke almost as though I could have done the whole job by savings. I do not think that that can be held, and I do not think that any of my predecessors—of either party—when confronted with the problem of managing the economy felt able to rely on savings. If they had done so there would not have been increases in taxation in 1952, 1955, and in many other years.
But that in no way minimses the importance of the subject. What I think is clear is that what is wanted is net additional personal saving on top of the present effort. There is no national gain or real encouragement to new savings in schemes which merely induce a switch of savings out of some channel into others with all the wasteful by-products of competitive rate-bidding and excessive handling of transactions. Thus attention increasingly focuses on new ideas to satisfy what appear to be gaps in the present range of inducements to save; the pre occupation with some kind of taxation help as in the new Clauses we

have been discussing; the searching after new forms of contractual saving which build on the self-generating impulse after an initial commitment; and also the natural concern to guard against changing money values.
I dealt with the last of those points, changing money values—in its most extreme form a safeguard would be an index-linked Government security—in my Budget speech. I indicated that I had considered this possibility, and, indeed, that I had considered the possibility of some "save-as-you-earn" scheme related somewhat to the basis of the old postwar credit scheme, but I found the existence of post-war credits unredeemed after 25 years an inescapable obstacle in the path of proceeding in this direction.
I do not under-estimate the strength of feeling which lies behind the idea of the index-linked Government security or the genuine concern for the personal saver's welfare which inspires it, but the obstacle, to which I referred in my Budget speech—the virtual impossibility of limiting the repercussions throughout the whole fixed interest market of introducing such a security—seems to be insurmountable. If hon. Members will study the experience of other countries in this respect, and the recent experience of one of the O.E.C.D. committees in its works on capital markets, they will see that there is a good deal of support for this view.
Stimulating savings through special tax concessions also attracts people, although it attracts Chancellors somewhat more when out of office than in office, because real difficulties are involved. It is very difficult to find ways of doing this which would be fair and would guarantee real additional saving, and would avoid a substantial loss of revenue beyond the limited arrangements which have been part of our tax system for many years.
I do not regard it as the last word on the matter, but the Royal Commission on Taxation had a good deal to say on this in Chapter 3 of its final Report. Aside from the major problems of principle there are serious practical obstacles in the way of operating savings schemes which depend on tax relief for the contributions.
I suppose that no tax problem of this sort is completely insurmountable. I


forget which Member opposite took up the point made by my hon. Friend the Member for Heywood and Royton (Mr. Barnett)—I believe that it was the hon. Member for Orpington (Mr. Lubbock)— that one should not adopt the attitude of saying that because something has not been done it can never be done. Equally, however, it would be very irresponsible for any Chancellor not to have regard to the extreme complications and burdens of work which might be placed on the Revenue.

Mr. Henry Clark: I have followed the right hon. Gentleman's argument with some interest. I should like to know why his arguments do not apply to the £160 million a year in tax rebates on life insurance and pension funds. Is he thinking of abolishing them in his next Budget?

Mr. Jenkins: I do not propose to do that. The fact that we have one somewhat complicated scheme to operate is not necessarily a reason for saying that the Revenue can take another in its stride.
I would point out to the hon. Member for Orpington that it is not a sound argument to say that since the Revenue was able to deal with natural fluctuations in income and earnings from week to week or month to month by means of P.A.Y.E. it should be able to deal with the problems of saving schemes based on tax relief. I have been into this matter because the same thought occurred to me, but I can assure the hon. Member that there are considerably greater problems involved in coping with a scheme geared to tax reliefs than are involved in coping with fluctuations in earnings. I am not saying that it could not be done in any circumstances; I am saying that the fact that P.A.Y.E. can cope with wage fluctuations because the tables are so designed does not mean that it can cope with other schemes in the same way.
There is a more limited area within this broad field which could well merit further study as other Government policies develop. In particular, I have it in mind that when the Government's proposals for earnings-related State pensions have proceeded a stage further there could well be scope for the clarification and simplification of tax rules affecting other super-

annuation schemes. I had already asked for a review of this subject, and I am not without hope that when we clarify pension fund arrangements there could be opportunities to improve upon the present inducements for such saving.
Consideration of saving through insurance and pension fund schemes leads on to thinking about other possibilities of harnessing new inducements to other contractual forms of saving. I agree that there is a potential source of new saving in the shorter-term scheme which offers high rewards for those who pay their contributions by deductions from pay. The National Savings Movement has operated in this field for many years with its group savings schemes. Gross national savings in its industrial groups last year were £158 million, and about 2¾ million members participated. We all want this kind of scheme to continue to thrive for the benefit of those whom it suits best.
The C.B.I. has produced some proposals for a new contractual savings scheme and I welcome this reaffirmation that employers are prepared to support and assist in practical ways the provision of good savings facilities for employees. The Government will be discussing with the C.B.I. and T.U.C. some of the new features of contractual savings schemes which are urged upon the Government, including those provided for in the new Clauses which we are considering.
6.45 p.m.
Some of these schemes are bound to present their own difficulties on close examination. It will be clear from what I have already said that the idea of tax relief on contributions to a scheme presents practical difficulties, as well as being open to objections of principle. For these reasons—I do not think that this will be a surprise to hon. Members, because they have indicated quite fairly that the Opposition Clauses were a sounding board and could not be regarded as completely final schemes—I shall have to advise the House not to accept the new Clause in the name of the right hon. Member for Enfield, West (Mr. Iain Macleod), which was moved by the hon. Member for Harrow, Central, or the new Clause standing in the names of the hon. Member for Colne Valley (Mr. Richard Wainwright) and the hon. Member for St. Ives (Mr. Nott).
The new Clause standing in the name of the hon. Member for Antrim, North is rather different—not that I shall advise the House to accept it. It is different in that it proposes an extension of age relief on unearned incomes. It is not confined to people earning modest incomes; indeed, it would give the greatest benefit to Surtax payers. I doubt whether this would have much relevance to the sort of savings that we are discussing, and it would be a very expensive inducement —costing the Revenue not £20 million but about £80 million a year. In these circumstances I have no hesitation in advising the House to reject this new Clause.
But there is scope for a new development in contractual savings, and I am having the possibilities re-examined as a matter of urgency. What I have in mind as a starting point is a scheme specially geared to the needs of employees, with all the advantages of deductions from pay at source. I feel that generous terms, perhaps with a tax-free yield, linked to an unbreakable contract to save regularly for a minimum period, are worth examining as a means of tapping a new source of money on terms which could be justified having regard to the firm commitment and the ease of handling.
Obviously, a great deal of detailed work must be done on this. The hon. Member for the Cities of London and Westminster (Mr. John Smith) asked me if I were open to receiving advice. I am —from him or anyone else. I look forward to the co-operation of the many representative bodies in the savings world who would wish to be associated with the Government's study. I cannot commit the Government at this stage to introduce a scheme, still less to fix a date for its starting, but since I have to ask the House to reject these Clauses I have thought it right to indicate the directions of my thinking and the specific areas of work which I have commissioned. I hope to be able to report further to the House on some of these in the new year.

Mr. Edward Du Cann: The right hon. Gentleman has been good enough to tell the House that he is conducting a full investigation of this matter. This has been listened to with gratification by all who are interested, especially those with a personal interest

in the National Savings Movement. Will the right hon. Gentleman undertake to incorporate in the review everything that is happening—especially in respect of employees—in United States and Germany as well as in connection with proposals in the United Kingdom?

Mr. Jenkins: Yes. Wherever it is relevant I am most anxious to have the full benefit of the experience of these two countries, as well as many other countries.
I am aware that I have not been able to announce any further dramatic new advance to the House. I also remind the House that many of my predecessors from the other side have studied this problem over a very long period without arriving at a dramatic new advance. I believe that it needs sympathetic and intensive study, and that I propose to give it. I hope that I have said enough to show that I attach very great importance to this subject.

Mr. Iain Macleod: I follow the Chancellor only because it will be convenient for the House that the contributions from the Front Bench should be consecutive. This has been an excellent debate. I am sure that many of my hon. Friends wish to contribute to it, but I will quite understand if the Chancellor, who, of course, is a busy man, is not able to stay for the whole debate.
We are grateful to my hon. Friend the Member for Harrow, Central (Mr. Grant) for initiating the debate and for the work that he has put in on new Clause 25, which is the first of the four which we are discussing. Almost everybody has a scheme for the increase of savings. There is new Clause 25, which is the child, basically, of my hon. Friend the Member for Harrow, Central; there is the Liberal scheme; there is the scheme of my hon. Friend the Member for St. Ives (Mr. Nott); there is the C.B.I. scheme; there is the scheme to which I am particularly attached, which was mentioned by the hon. Member for Heywood and Royton (Mr. Barnett), which is based on a S.A.Y.E. policy, save-as-you-earn. It seems that everybody has a scheme except the Government, although it is, I suppose, something that the Chancellor has said that he is thinking about having one.
I remember very well an anniversary meeting of the National Savings Movement, held a year or so ago at Guildhall, which I attended with the Chancellor's predecessor, the present Home Secretary. We both made speeches. The theme of the Home Secretary's speech was the theme of more savings, less tax, which came from his Budget speech. That is an admirable principle, only slightly spoiled by the fact that we have the exact reverse under the present Administration. We have, in fact, more tax and less savings.
The Chancellor would, I think, agree that the urgency of the present search for new methods of savings is very much pointed by the fact—and that is why we have these four Clauses for discussion now—that there can be little doubt that, partly with the increasing sophistication of people, the traditional methods of saving are less and less automatic and, perhaps, less and less productive. There can be little doubt that what has been called the "spending spree" has been largely financed by the drawing-down of savings. There is little doubt that the flight from money in one way or another is gathering pace. I find it almost impossible to reconcile what I read yesterday in the Board of Trade returns with what I know to be the facts about consumer spending at the present time. But that is a digression, and I will return to the four Clauses, particularly Clause 25.
We have all paid tribute in our day, and quite rightly, to the excellent work of the National Savings Movement, splendidly led and splendidly staffed by volunteers at all levels. Nothing which I have to say in any way derogates from that, but I feel that some methods of national savings are becoming a little outdated. I find the advertising humdrum, in fact rather dreary, and the concept is less exciting than it used to be. As the House knows, my hobby horse, the S.A.Y.E. scheme, is based on what has been called the habit of saving.
The Chancellor said a few moments ago, and he is quite right, that what we want, and what these Clauses are designed to achieve, is net additional new savings. I think that he is wrong, however, to link the efforts which are being made in any way with the failure, as many people would regard it, looking back, of the post-war credit scheme. I see no reason

why he should do this and no link between the two, for the obvious reason that the post-war credit scheme was compulsory, whereas I do not suggest, and none of these forms suggests, compulsory savings. This objection of the Chancellor's, which I fully understand in relation to a compulsory form of saving, is not relevant to most speeches which have been made today.
The really big money available, if it could be tapped through a thrift plan or in some other way, is the regular comparatively small savings from an enormous number of people, rather than the present tendency and the past tendency of Chancellors for a long time, of trying to encourage comparatively small extra amounts from few people by offering them inducements to switch. It is a thoroughly desirable part of the hunt for new savings that there should be some excitement attached to the savings, that there should be a chance of appreciation of the amounts invested, and this becomes important as the investor becomes more sophisticated.
It seems clear from the debate that the other side of the House, particularly the Chancellor and the hon. Member for Heywood and Royton, have been obsessed with the difficulties, whereas the speakers from the Liberal benches and from these benches have been interested in the opportunities put forward by the various schemes. I do not for a moment underestimate the difficulties. I have done quite a lot of work on this, and even outside the Government machine I can see many of the difficulties. I have the feeling that the right answer is the Churchillian one, "Do not argue the difficulties. The difficulties will argue for themselves."
If it is made clear that this is what will be done, I do not believe for a moment that the difficulties will be insuperable. My hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) was quite right; it was a failure of the Budget, and it has been one of our main criticisms of the Budget, that, on balance, it was anti-saving. That is why there is a vital need for such a Clause as is before the House.
We suggest in the four Clauses—and I am linking the Liberal Clause with them —that we should learn from the experience of other countries. The Liberal Party points to West Germany; new


Clause 25 points to the experience of the United States. When we have learned from other countries, we should put in our own experience, which is not inconsiderable, and we should do a great deal of work on it. The Conservative Party has already produced a pamphlet of one possible method of saving, and we are in advance of the Chancellor in the work he is doing here.
Making allowance for the difficulties, which I recognise, and for the problems which he outlined to the House, I found the right hon. Gentleman's response to these imaginative proposals unhappily negative. For the reasons I have given, I regard this as an important debate, and I hope that it does not end until hon. Members who wish to speak have contributed to it, but in due course I suggest to my hon. Friend the Member for Harrow, Central that we would be right to carry out dissatisfaction, not with the ultimate intentions of the Chancellor, but simply at the snail-like progress which he is making on this topic, in to the Division Lobby when the time comes.

7.0 p.m.

Mr. Geoffrey Hirst: I am sorry that the Chancellor has to leave. I appreciate that he is a busy man. However, I take the view that when the Finance Bill is discussed on the Floor of the House for only four or five days, a Chancellor of the Exchequer should not deny himself the opportunity of hearing the views of back-bench hon. Members. But I have every faith in the Financial Secretary, who is very attendant on the House.
I join my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) in disappointment at the right hon. Gentleman's approach to the subject. It is surprising that there is not already a Government solution along these lines. Equally, I am frightened when I hear him speaking about post-war credits, and so on, although it may not mean anything except that something is wrong with his thinking. Certainly, it has no relevance.
It is not often that I agree with the hon. Member for Orpington (Mr. Lubbock), and I am rather frightened at the suggestion that I may. However, I agree with him today when he says that we need a new, radical approach to the sub-

ject of savings. No one can doubt that there is a big awareness in people's minds that they have to protect themselves as never before from the fall in the value of money. There is no shadow of doubt about that, whatever is done, and much has been done by the National Savings Movement. But that will not be repeated. Therefore, we must think anew. The Chancellor clearly is not thinking anew, and that is our objection. He must think anew, as must the whole Treasury.
It is no good arguing about the difficulties. I was shocked by the speech of the hon. Member for Heywood and Royton (Mr. Barnett), who generally enters our debates with rather more imagination than he displayed today. If we make up our minds to do something, my experience in the House has been that the Treasury finds the answer. It is for the Government to satisfy themselves that a new radical approach to savings is required and that it has to be along certain lines. Once a policy decision is taken to that effect, somehow or other the officials behind the scenes will find a way. After all, they have found ways to some dreadful policies in my time, and this is a simple matter by comparison.
We are not satisfied that the Chancellor's mind is up to date and that he is conscious of the way that people are thinking. If we are to get this completely new approach to saving, it is no use our making up our minds in a vacuum simply because the Treasury suggests it or a Royal Commission thinks that it is a good idea. We have to realise what it is that the people want. They want to be protected against the fall in the value of money, and a scheme which does not take that into consideration is a waste of time.
It is along those lines that the C.B.I. was thinking. I was on the committee of that body which devised its scheme. I do not agree with it all, but I think that the idea behind it is right. But where are the Government in this matter? As my right hon. Friend has said, everyone has a scheme except the Government, and that is what makes us nervous. I am sure that the Financial Secretary is conscious of that feeling in the House today. He realises the vast importance of it.
If the Government got out some sort of scheme of their own, they could protect the nation from the further inroads


of taxation which we shall see again whether this miserable Government remain in office much longer. We have to take this very important factor into consideration. I sincerely hope that the Government will now do some rapid thinking and realise that they have to get a new level of savings from people who are making fairly good money and who want a simple scheme available. It would be possible to sell a scheme where savings were made as on earned on a contractual basis, and I will not be put off by the argument that it would make the P.A.Y.E. card difficult. If it gets as difficult as all that, we must bring out a system to replace it.
If we are to correct the present situation in the country, and encourage people to greater effort, we must get away from the idea of damning with taxation and, instead, devise a scheme of savings which maintains the value of money. Let us have some up-to-date thinking instead of the old bureaucratic line of thought, and let us have some sense.

Captain Walter Elliot: I find it depressing to speak in support of a victim whose head has been cut off, but, if it is depressing for me, I am certain that this lack of a dynamic approach by the Chancellor to national savings will be infinitely more depressing for the country.
Naturally, when the Chancellor speaks about tax concessions and what he considers might be a substantial loss in revenue as a result, one must respect what he says. But, just as a small influx of money into a business at the right time leads to results out of all comparison to the size of the sum of money, small concessions in certain areas of savings would lead to results out of all proportion to the costs.
I want to speak in support of the scheme in new Clause 91, which was touched on by my hon. Friend the Member for Antrim, North (Mr. Henry Clark). I am sure that the Treasury Bench would be the first to agree that one of our great troubles even today is a consumer boom. I imagine that, in the last six or eight months, the Treasury has probably thought about little else. However, I do not believe that the problem should be looked at in the narrow sense. We should look further than the

pre-Budget boom, further than a boom from one quarter to another, and even further than a boom from one year to the next. The situation has to be looked at in a much wider sense.
The Chancellor referred in his Budget speech to the fact that we consume too great a proportion of our gross national product, with the result that not enough is exported and there is insufficient capital investment. As a result, we have resorted to what seem desperate and temporary measures by successive Chancellors to curb the spending boom. Socialist Chancellors especially have relied heavily on the tax weapon. I saw today, if the Chancellor was reported correctly in the Press, that he said that we have just about reached the limit of taxation in this country. I think that he is right.
As well as the tax weapon, we have seen various financial inducements to persuade companies to invest more and to retain their earnings. But these are palliatives only. We need a massive re-orientation in the habits of the nation towards thrift and the saving of money. This is an extremely difficult task.
Ever since the war, Government policies have tended to weaken the habit of thrift. In earlier decades the fear of poverty in old age was a spur to thrift. With the development of social services, this has been mitigated, and probably that is all to the good. Many services are now free and that leaves resources with which people can buy consumer goods. The development of hire purchase for all ages, along with high-pressure advertising, has greatly increased the pressure on people to buy goods and something must be done to counteract it. We must buttress and foster thrift to weaken the pressures to consume.
In spite of the change in our habits and the development of social services, I am convinced that the urge to save for retirement or old age is extremely strong. Time and again, when I have been trying to arrange for supplementary pensions for elderly people—I am sure that other hon. Members have had this experience —I have been stopped, understandably enough, by the firm and ingrained desire of people to hold on to and preserve the small amount of capital which they have


managed to save and which gives independence and security far more than any State system.
This desire to save for old age must be encouraged. It is highly desirable for the nation and the individual. If it can be developed, it will lessen the burden of taxation, decrease consumption of goods, make room for exports and assist investment. New Clause 91 is a beginning. It is simple, people will understand it and it will encourage the small man to save, which, I believe, is what we want.
It was most disappointing to hear the Chancellor enumerate all the difficulties against allowing the Clause. Of course there are difficulties. The Clause may need rewording and the limit may have to be altered, but that is nothing which the Treasury cannot overcome. I am sorry that the right hon. Gentleman has turned it down and I hope that, in the time ahead, the Government will seriously consider incorporating it in the next Finance Bill.

Sir G. Nabarro: The new Clause with which we are primarily concerned is No. 25, to which my name has been added as fourth on the list,. after those of my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod), my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Harrow, Central (Mr. Grant), and I have waited for 2½ hours, Mr. Deputy Speaker, to catch your eye or that of your predecessor. Of course, I had not hoped to speak after the Chancellor but before him. I have now torn up what I was going to say and will confine myself to his statement.
I alluded in an intervention in the speech of my hon. Friend the Member for Acton (Mr. Kenneth Baker) to the indissoluble link between savings and taxation. The Chancellor referred to taxation, and savings in the context of taxation, and it was that part of his statement which caused me the greatest disappointment. I am much closer to my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) than I am to the Chancellor. This evening, we have heard a further fragment of "The emerging Tax Philosophy of Mr. Jenkins"—

Mr. Speaker: Order.

Sir G. Nabarro: I will finish my sentence, Mr. Speaker.
—as an appendix to the leading feature contribution to the Financial Times under that title on 9th April last. So you can see, Mr. Speaker, that I am absolutely in order.
I have been awaiting this savings fragment to complete "The emerging Tax Philosophy of Mr. Jenkins"—to quote again the article in the Financial Times— in the special context of savings, for the important reason that every chancellor since the late Sir Stafford Cripps has, at one time or another—generally in the country, rarely in the House—alluded to the fact that he could take less in taxation if he could secure more in personal savings. That was the policy of the late Sir Stafford Cripps when Chancellor, of the late Mr. Gaitskell when Chancellor, of Lord Butler when Chancellor, of Mr. Harold Macmillan when Chancellor, of Lord Thorneycroft when Chancellor, of Mr. Heathcoat Amory when Chancellor, of my right hon. and learned Friend the Member for The Wirral (Mr. Selwyn Lloyd) when Chancellor and of my right hon. Friend the Member for Barnet (Mr. Maudling) when Chancellor.
It was the policy of the present Home Secretary when Chancellor—[Interruption.] Does the Financial Secretary to the Treasury wish to intervene? What he murmured—sotto voce, but my hearing is acute—was that it is the policy of the present Chancellor—

Mr. Harold Lever: Mr. Harold Lever indicated assent.

Sir G. Nabarro: But it is not—

Mr. Lever: Yes it is.

7.15 p.m.

Sir G. Nabarro: But I say that it is not. Manifestly, it is not his policy, because the present Chancellor said today that of course he could not raise the large extra sums of taxation which he deemed necessary in this Budget by savings as an alternative to taxes. No one ever suggested that he could. No hon. Member would suggest that £939 million, being the added burden of taxation in this Budget, could be raised by additional savings alone, but a substantial part of it could have been.
What the Chancellor should have done in the Budget was reduce direct taxes as an incentive and offset the fall in revenue by an increase in personal savings with powerful incentives provided to attract those personal savings. This is not a new concept. The Chancellor did not embrace it this evening, although the Financial Secretary says that he did. I listened to his speech: he did not embrace it. When the Financial Secretary reads it tomorrow morning, he will recognise that I am right and he is wrong.
I said it much more unequivocally in 1966, and this quotation, in the context of savings, allows of no possible misunderstanding. I said:
The Chancellor will spring to the defence of his Budget proposals this year, and will say that he cannot afford reduction of the standard rate of 8s. 3d. in the £ to 7s. 6d. He will say that he cannot afford a reduction in the revenue of £240 million. But the same Chancellor of the Exchequer and all his predecessors for years and years past have stumped the country saying, ' Give me National Savings and I will abate tax revenue by an equivalent sum'. Every Chancellor, the present Chancellor included, makes dynamic speeches in support of personal savings and National Savings and says, 'If I can get an increase in National Savings it is as good to me as tax revenue'."—[OFFICIAL REPORT, 20th June 1966; Vol. 730, c. 61.]
The Chancellor this year has made no attempt to do that, although he averred half-heartedly his support for the principle this, evening. The reason that he has made no attempt to do it is, I suppose, that he knows that he could not succeed on the scale that he would have preferred to achieve had he substituted savings for taxes—I mean by that a figure of £300 million or £400 million from additional personal savings of all kinds, and the money surely is there to be saved if the incentives are provided and the attractions offered.
I added my name to this new Clause largely because the name of my right hon. Friend the Member for Taunton was on it. No one in the field of unit trusts has a record to compare with his for tremendous success in attracting new savings. It is an alternative to National Savings. In May, 1968, alone, £28 million of new money was invested in unit trusts. In two short years, between 1966 and 1968, the aggregation of sums vested in unit trusts; has grown from £600 million to more than £1,000 million. Investment

in unit trusts is increasing at the rate of more than £200 million of new savings every year. The National Savings Movement cannot hold a candle to it.
I urge hon. Members to study the comparative results of national savings, and I repeat this in the context of what my right hon. Friend the Member for Enfield, West said about the unattractiveness of National Savings today. In 1964–65, the last year of Tory government, £195 million was the increase in National Savings. In the first year of Labour Government that was transposed to a deficit in national savings of £54 million✶ so that in one year the change-over from a surplus of £195 million to a deficit of £54 million represented a change-over of no less than £249 million.
The next year, 1966, National Savings broke even and in 1967 they showed a modest surplus of £80 million. That compares with the present rate of increase in the aggression of unit trusts of more than £200 million per annum. Surely these figures demonstrate that there is something gravely wrong with the condition of National Savings today and with the incentives offered to attract new national savings.
That is the major point I wish to make. Shortly, it is that unless we have a scheme of the kind enshrined in new Clause 25 we will not attract new savings. Only through the medium of a scheme of this sort can we match the attractiveness that the unit trusts offer—that attractiveness which proliferates in the national and Sunday newspapers, offering, for example, life assurance with a saving of a few pounds per month, all sorts of attractive benefits for children's savings and the rest, few of which are matched by the National Savings Movement.
The Chancellor rubbed along in an unattractive, pedantic way about tax incentives for savings when he should have told the House that there are admirable precedents for giving such incentives. Lest he has forgotten them, I remind the Financial Secretary of at least three of them. For many years we had a system of allowing relief of Income Tax at the rate of 3s. 6d. in £, with a maximum of one-sixth of the annual income of any saver, through life assurance schemes✶ a tax relief for small savings linked to life assurance.
My second example, brought in by a Tory Chancellor about 10 years ago in response to pressure from my hon. Friends and myself: the first £15 of annual interest in the National Savings Bank would go tax-free, and at a flat rate of 2½ per cent. interest, that would mean a capital vested of £600. In other words, tax on the interest derived from a capital sum of £600 is tax-free as an incentive to small savers, in the National Savings Bank.
The third example is, of course, in the form of National Savings Certificates, which are free of tax on the interest accrued, but not only for the initial published life of the certificate. For example, we have the tenth issue, of which millions are held today, but not encashed. These aggregate more and more interest year by year, though on a reduced scale, and all tax free.
These are just three examples of tax incentives for savings. It is, therefore, ridiculous for the Chancellor to say that he cannot evolve a comparable scheme for tax-free contractual small savings through the machinery of P.A.Y.E., all of which could be operated on tax tables and by company accountants who are thoroughly skilled in these operations.
Does the Chancellor genuinely desire new capital formation in this country to be created by the orthodox method, the correct method, of resting on the aggregation of personal and corporate savings? That is how new capital formation should be created. I do not believe that we can ever save sufficient capital sums unless we are prepared to embark on contractual savings schemes of the kind enshrined in new Clause 25.
Last night the House of Commons behaved splendidly. It threw out Clause 50 of the Bill. In one of the final speeches in that debate I said that gambling was running at an excessive rate in this country because taxation was excessively high. I add to what I said then, in the context of savings, that National Savings in Britain are debilitated today, because of the excessive level of direct and indirect taxation.
I prefer savings to taxes. I prefer contractual savings of the kind suggested in new Clause 25 to sporadic savings, which are much less valuable to the Treasury. It is for all these reasons that I castigate

the Chancellor for his speech tonight, a speech which was obscurantist in character and feeble in the note it struck when he should have been bold and decisive in appealing to the nation for far larger savings, all of which are vitally necessary to our national economy in its present predicament.
I am delighted that my right hon. Friend the Member for Enfield, West asked me to vote with him tonight.

Sir Douglas Glover: Bully for Gerald!

Sir G. Nabarro: It is all very well for my hon. Friend to say bully for me, but I am only too delighted to walk into the Lobby with my right hon. Friend. Although I have often quarrelled with him on matters of fiscal minutae, I have great respect for his financial and fiscal philosophies. The House might be interested in a quotation from an article written by right hon. Friend, gathered from my encyclopaedic file of his utterances, a file which is collated by my researchers. Writing in the Sunday Telegraph on 30th July, 1967—I quote his words because they are most apposite to the debate—he said:
I want to see a capital-owning democracy and I want to see an economy of choice. The phrases are mine, but each has a political parent. A capital-owning democracy complements Sir Anthony Eden's aim of a property-owning democracy. If today you start with wealth it is not difficult to keep it. If you start with nothing our present levels of taxation mean that even the ablest salaried man cannot acquire a modest competence.
I congratulate my right hon. Friend. When he is Chancellor—a time which I hope will not be long delayed—I will call on him to implement those words and put into practice the principles which he has given to the House tonight, all of which I will shortly support in the Lobby.

7.30 p.m.

Sir Henry d'Avigdor-Goldsmid: My hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) began his memorable remarks with the information that he had already torn up his speech, so presumably his notes were thrust into his hands during that moment when he absented himself after the Chancellor of the Exchequer had spoken.
I am glad that his research department worked with such skill and speed.


It was, perhaps, a skill and speed like that of the great Lord Birkenhead. He went further. When the great Lord Birkenhead taxed the Chancellor of the Exchequer of the day, then Mr. Lloyd George, with some words which Lloyd George denied having spoken, Lord Birkenhead said, "I had anticipated that —a lapse of memory. I have here a copy of the appropriate newspaper". Perhaps my hon. Friend has said, "I anticipate not being called, so I have here an alternative speech". Whether it was his first, second or third speech his was a very fine performance.
On the very important subject of savings, altogether different points are at issue. One is the requirement of the Government to borrow from their citizens. It is clear that this requirement cannot be made today without some element of fiscal privilege in those who lend to the Government. This is a fact that the Treasury must now accept and absorb. I confess that I had not intended to speak at this stage, but I do so because I was so disenchanted by the Chancellor of the Exchequer's remarks. His was the kind of speech that could have been made from the Treasury Bench at any time during the last 20 years, yet even the most ignorant student of current affairs must realise that times have changed during the last 20 years, and that the Government, as borrowers, are now meeting very severe competition.
The great mass of people are inclined to save. What worries them very much is to think that what they save is being eroded through no fault of their own. Where we have gone wrong so often has been that in trying to attract new savings all we have done has been to invite people who have money to change from one form of security to another.
The important thing is to attract the new saver, which is exactly the purpose of the new Clause. But I believe that there is an alternative to giving him a fiscal advantage. The new saver, and I speak only of the new saver, should be given a built-in insurance against inflation. He should not necessarily be given a righ rate of interest—probably a low rate of interest—but a guaranteed assurance that his interest moves with the changes in the cost of living.
There is no question that that would attract new saving. It is, very clearly, not practicable to extend that assurance to the entire field of savings at present, but to get the new saver in is the most important contribution that can be made in the coming 12 months, because we see a situation today where the entire fixed-interest market of the country is crumbling.
Why is it crumbling? It is crumbling because, as the Financial Secretary very well knows, every person who has money in fixed interest is saying to himself, "What will my position be next week? What will my position be next month?" I do not believe that all our constituents spend their time reading the Financial Times—I do not think that basically they want to bother with these things— but they like to feel that what they put into the savings bank will be there when they need it.
At the same time, I do not see that there is any special national interest involved in making it cheap and attractive for people to invest their money in various forms of speculative enterprise— some of it more speculative and some of it less—but this is something that people go into because they regard it as a means of protecting their funds. We really must apply ourselves to the question of protecting the funds of the individual.
We have been a great deal too light-hearted in our approach to this subject over the years—and I do not think that either side can be free of that charge— and now we see where that light-hearted-ness has got us. As the Financial Secretary very clearly recognises, there is such a very large amount of money still in Government fixed-interest stocks which, theoretically, is free to come out at any moment, that if there were any real dissaving movement, a movement from fixed-interest stocks in a big way— because what we have seen so far is relatively small and unimportant—the consequences to Government credit would be disastrous.
The only way in which the Govern-men can remedy this state of things is to accept the principle that they need the people's savings and must offer the people some form of fiscal attraction to induce them to part with their savings. I suggest that the small new saver should be


rewarded with a built-in guarantee against inflation.
I believe, as my right hon. Friend the Member for Flint, West (Mr. Birch) has urged in the past, that the case of the large investor might broadly be met by exempting from Capital Gains Tax transactions in the fixed interest market. I do not pursue that point now, because it only relatively affects the position. I am glad to have the opportunity this evening to support this Clause and, particularly, with my hon. and right hon Friends to mark my dispproval of the attitude of the Treasury which, like Casabianca, remains on the burning deck of the fixed interest market whence all but it has fled.

Mr. du Cann: I had not intended to intervene, because I knew my hon. Friend the Member for Harrow, Central (Mr. Grant) would make so admirable a speech in this sector of our ideas where he has spent so much time and constructive thought that it would not be necessary for any of us to support him at all. On the other hand, I was a little shocked by what the Chancellor of the Exchequer said, and I feel that some of his comments merit some form of reply.
I must declare an interest, although it is an interest well known to the House, and this is about the ninth time that I have declared it. I am chairman of the unit trust group which I founded about 11 years ago.
The Chancellor of the Exchequer said that he did not wish to put himself in a position in which he was obliged to rely 100 per cent. upon an increase in savings, but no one has ever asked him to do that, or suggested that such a course would be realistic. The fact is that by his actions, or rather by his lack of actions, he relies not at all on savings at the present time. It is with that attitude and that view that we on this side substantially quarrel.
The right hon. Gentleman said that he wanted to find ways of producing a net addition to personal savings. With that view we would all precisely agree. On the other hand, it seems to be entirely outside the right hon. Gentleman's understanding that with taxation at its present high levels, and the complications of the present tax system, it is inevitable that there will be a substantial degree of switching; and nothing en-

courages switching more than marginal improvements in the rates of certain of the securities issued, with the approval of the Chancellor of the Exchequer, by the National Savings Committee. In other words, I accuse the right hon. Gentleman of encouraging people of switching savings, and of creating just that volume of work which he stated it was his intention to avoid.
Thirdly, the right hon. Gentleman said that he wished to avoid losses of taxation. Again, none of us would quarrel with that. On the other hand, again the matters of which I have spoken lead almost inevitably to this process. In his speech I had hoped and expected to listen to an intellectual argument which would refute my hon. Friend's new Clause and the speeches made in support of it. The disappointment of this debate was the commonplace nature of the Chancellor's reply. I regret having to say this. It was a betrayal of his intellectual capacity and an insult to all who have laboured constructively in this field for many years.
The Chancellor said that he and the Treasury were undertaking a wide-ranging review. The Acton Society Trust results were published many years ago emphasising the need for interest in contractual savings, a point with which my hon. Friend the Member for Harrow, Central is particularly concerned. All the evidence of public demand is available, and has been available for many years. There is no need for a review in that regard.
As to a review of new possibilities in future, I beg the Financial Secretary— for whose understanding of these matters I have the highest regard, as does the whole House—to bear in mind that it is not only a matter of finding new methods, but a question of looking at the situation as it already exists. It is the duty of the Treasury not only to facilitate the new suggestions made from time to time, but existing savings media and to remove disabilities from them.
Many of us have argued in different ways and at different times that those disabilities are enormous. It will be within your recollection, Mr. Speaker, that the Chancellor said that he wished to avoid complication of any sort, but I am one who, year after year, has badgered the Treasury to do something about


the incidence of Capital Gains Tax on exactly the sort of contractual schemes we are discussing. It is well known that many small investors, by banking orders, subscribe small amounts of money—10s., £1, or £2—for purchase of shares in unit trust savings schemes. This, over a period of years, may involve several hundred transactions. In each and every one the Capital Gains incidence has to be separately assessed. If ever there were an absurd labour on behalf of individuals and the Inland Revenue, surely this is it.
I quote one example to show that there is a substantial need to look at the existing situation and to remove the disabilities affecting those whose purpose to encourage savings at present[...] I hope, entirely innocent and meritorious. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), speaking with the knowledge so characteristic of him, has referred to the subject of gilt-edged. In Committee, we discussed, gilt-edged. We had no comment from the Chancellor this afternoon that income from gilt-edged is currently regarded as unfranked income, a second example of disability. There is much that various savings media could do to encourage a new popular investment in gilt-edged if this silly disability were removed.
It would be possible easily to give a catalogue, a lengthy catalogue, of disabilities which could be removed and thus providing an impetus to the existing sources of savings. I have given two examples. I regard that as sufficient to make the point. As one who has devoted his commercial life to the encouragement of savings, I say that the Government, instead, as my hon. Friend the Member for Shipley (Mr. Hirst) clearly pointed out, of engaging in platitudinous statements from the Front Bench, should encourage those who are doing their best in this field to get on in a practical fashion.
7.45 p.m.
I turn to the point made by my hon. and gallant Friend the Member for Carshalton (Captain W. Elliot). He spoke of the reasons why people save. One matter of the bitterest disencouragement to me

in my 12 years' membership of this House has been that there has never been a clear appreciation of what the philosophy of the Government should be in the savings field. Why did the Chancellor say this afternoon that a review was under way? The answer is obvious. It was because he is under pressure from this side of the House and in the country in various ways. There is no initiative. What the Chancellor speaks of is in response to consistent pressure from my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) and other hon. Friends over many years.

I believe that the national interest requires a substantial initiative in this field in the interests of us all. It is the duty of the Government to provide that initiative. I strongly support the Clause, I argue, also, something different. It is clear to us all that for the rest of our lifetime there will unquestionably be a shortage of capital for practical purposes in this country and in those abroad. It is the duty of this House to foresee situations of this character and to endeavour to supply the need for practical help of one kind or another.

If that is insufficient in itself as an argument, I return to the point made by my hon. and gallant Friend. The reason why I got into the unit trust movement was very simple. It was because it was in accordance with my philosophy. I have long believed that the diffusion of power is infinitely better than concentration of power in a single pair of hands, or the hands of the State. There are practical ways of encouraging savings and bringing this process about.

Last, but by no means least, there is re-encouragement of that spirit of independence and integrity of mind which has made our country great in the past and probably can make it great again. Why the Treasury sits indifferent to these great purposes I cannot imagine. I am impatient of it and I am glad to see that my hon. and right hon. Friends are as impatient as I am.

Question put, That the Clause be read a Second time: —

The House divided: Ayes 135, Noes 189.

Division No. 258.]
AYES
[7.48 p.m.


Alison, Michael (Barkslon Ash)
Bell, Ranald
Boarctman, Tom (Leicester, S.W.)


Baker, Kenneth (Acton)
Bitten, John
Boyle, Rt. Hn. Sir Edward


Balniel, Lord
Black, Sir Cyril
Brewis, John




Brinton, Sir Tatton
Hawkins, Paul
Pike, Miss Mervyn


Buchanan-Smith, Alick(Angus,N&amp;M)
Heald, Rt. Hn. Sir Lionel
Pink, R. Bonner


Bullus, Sir Eric
Higgins, Terence L.
Pounder, Rafton


Burden, F. A.
Hirst, Geoffrey
Powell, Rt. Hn. J. Enoch


Campbell, B. (Oldham, W.)
Holland, Philip
Pym, Francis


Campbell, Gordon (Moroy &amp; Nairn)
Hooson, Emlyn
Ramsden, Rt. Hn. James


Carlisle, Mark
Hornby, Richard
Rawlinson, Rt. Hn. Sir Peter


Cary, Sir Robert
Hunt, John
Rhys Williams, Sir Brandon


Chichester-Clark, R.
Jenkin, Patrick (Woodford)
Ridley, Hn. Nicholas


Clark, Henry
Kaberry, Sir Donald
Ridsdale, Julian


Clegg, Walter
Kimball, Marcus
Rodgers, Sir John (Sevenoaks)


Cooke, Robert
King, Evelyn (Dorset, S.)
Rossi, Hugh (Hornsey)


Cooper-Key, Sir Neill
Kirk, Peter
Royle, Anthony


Corfield, F. V.
Knight, Mrs. Jill
Sharpies, Richard


Craddock, Sir Beresford (Spelthorne)
Langford-Holt, Sir John
Shaw, Michael (Sc'b'gh &amp; Whitby)


Crouch, David
Longden, Gilbert
Silvester, Frederick


Crowder, F. P.
Lubbock, Eric
Sinclair, Sir George


Dance, James
McAdden, Sir Stephen
Smith, Dudley (W'wick &amp; L'mington)


Davidson, James (Aberdeenshire,W.)
Mackenzie, Alasdair(Ross&amp;Crom'ty)
Smith, John (London &amp; W'minster)


d'Avigdor-Goldsmid, Sir Henry
Maclean, Sir Fitzroy
Stainton, Keith


Dean, Paul (Somerset, N.)
Macleod, Rt. Hn. lain
Steel, David (Roxburgh)


Deedes, Rt. Hn. W. F. (Ashford)
McMaster, Stanley
Summers, Sir Spencer


Eden, Sir John
Maddan, Martin
Taylor, Sir Charles (Eastbourne)


Elliot, Capt. Walter (Carshalton)
Marten, Neil
Temple, John M.


Emery, Peter
Maude, Angus
Thatcher, Mrs. Margaret


Eyre, Reginald
Mawby, Ray
Turton, Rt. Hn. R. H.


Farr, John
Maxwell-Hyslop, R. J.
van Straubenzee, W. R.


Fortescue, Tim
Maydon, Lt.Cmdr. S. L. C.
Waddington, D.


Fraser, Rt. Hn. Hugh (St'fford &amp; Stone)
Mills, Peter (Torrington)
Wainwright, Richard (Colne Valley)


Glover, Sir Douglas
More, Jasper
Walker-Smith, Rt. Hn. Sir Derek


Coodhart, Philip
Morgan, Geraint (Denbigh)
Wall, Patrick


Goodhew, Victor
Munro-Lucas-Tooth, Sir Hugh
Walters, Dennis


Cower, Raymond
Murton, Oscar
Ward, Dame Irene


Grieve, Percy
Nabarro, Sir Gerald
Weatherill, Bernard


Griffiths, Eldon (Bury St. Edmunds)
Nicholls, Sir Harmar
Whitelaw, Rt. Hn. William


Grimond, Rt. Hn. J.
Noble, Rt. Hn. Michael
Williams, Donald (Dudley)


Gurden, Harold
Onslow, Cranley
Wilson, Geoffrey (Truro)


Hall, John (Wycombe)
Osborne, Sir Cyril (Louth)
Winstanley, Dr. M. P.


Hall-Davis, A. G. F.
Page, Graham (Crosby)
Wolrige-Gordon, Patrick


Harrison, Brian (Maldon)
Pardoe, John
Younger, Hn. George


Harrison, Col. Sir Harwood (Eye)
Pearson, Sir Frank (Clitheroe)



Harvey, Sir Arthur Vere
Peel, John
TELLERS FOR THE AYES:


Harvie Anderson, Miss
Percival, Ian
Mr. R. W. Elliott and




Mr. Anthony Grant.




NOES


Abse, Leo
Davies, Harold (Leek)
Heffer, Eric S.


Albu, Austen
Davies, Ifor (Gower)
Henig, Stanley


Allaun, Frank, (Salford, E.)
Dempsey, James
Herbison, Rt. Hn. Margaret


Aldritt, Walter
Diamond, Rt. Hn. John
Hooley, Frank


Anderson, Donald
Dickens, James
Howarth, Harry (Wellingborough)


Archer, Peter
Doig, Peter
Howell, Denis (Small Heath)


Armstrong, Ernest
Driberg, Tom
Howie, W.


Atkins, Ronald (Preston, N.)
Dunn, James A.
Hoy, James


Atkinson, Norman (Tottenham)
Dunwoody, Mrs. Cwyneth (Exeter)
Huckfield, Leslie


Bacon, Rt. Hn. Alice
Dunwoody, Dr. John (F'th &amp; C'b'e)
Hughes, Emrys (Ayrshire, S.)


Barnett, Joel
Edelman, Maurice
Hughes, Roy (Newport)


Baxter, William
Edwards, William (Merioneth)
Hunter, Adam


Bidwell, Sydney
Ellis, John
Hynd, John


Bishop, E. S.
English, Michael
Jackson, Colin (B'h'se &amp; Spenb'gh)


Blackburn, F.
Evans, Albert (Islington, S.W.)
Jackson, Peter M. (High Peak)


Boardman, H. (Leigh)
Fernyhough, E.
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)


Booth, Albert
Fletcher, Raymond (Ilkeston)
Johnson, Carol (Lewisham, S.)


Boston, Terence
Fletcher, Ted (Darlington)
Jones, Dan (Burnley)


Braddock, Mrs. E. M.
Foley, Maurice
Jones, J. Idwal (Wrexham)


Brooks, Edwin
Foot, Michael ((Ebbw Vale)
Kerr, Mrs. Anne (R'ter &amp; Chatham)


Brown, Bob(N'c'tle-upon-Tyne,W.)
Forrester, John
Kerr, Dr. David (W'worth, Central)


Brown, Hugh D. (G'gow, Provan)
Fowler, Gerry
Kerr, Russell (Feltham)


Brown, R. W. (Shoreditch &amp; F'bury)
Freeson, Reginald
Lawson, George


Buchanan, Richard (G'gow, Sp'burn)
Galpern, Sir Myer
Leadbitter, Ted


Butler, Herbert (Hackney, C.)
Gardner, Tony
Ledger, Ron


Callaghan, Rt. Hn. James
Gray, Dr. Hugh (Yarmouth)
Lee, Rt. Hn. Frederick (Newton)


Cant, R. B.
Gregory, Arnold
Lee, John (Reading)


Carmichael, Neil
Grey, Charles (Durham)
Lestor, Miss Joan


Carter-Jones, Lewis
Griffiths, Eddie (Brightside)
Lever, Harold (Cheetham)


Chapman, Donald
Griffiths, Will (Exchange)
Lewis, Arthur (W. Ham, N.)


Coleman, Donald
Hamilton, James (Bothwell)
Lewis, Ron (Carlisle)


Concannon, J. D.
Hamilton, William (Fife, W.)
Lomas, Kenneth


Corbet, Mrs. Freda
Hannan, William
Loughlin, Charles


Crawshaw, Richard
Harper, Joseph
Luard, Evan


Cullen, Mrs. Alice
Harrison, Walter (Wakefield)
Lyon, Alexander W. (York)


Dalyell, Tam
Haseldine, Norman
Lyons, Edward (Bradford, E.)


Darling, Rt. Hn. George
Hazell, Bert
McCann, John







MacColl, James
Orme, Stanley
Small, William


MacDermot, Niall
Oswald, Thomas
Spriggs, Leslie


McGuire, Michael
Owen, Dr. David (Plymouth, S'tn)
Steele, Thomas (Dunbartonshire, W.)


McKay, Mrs. Margaret
Page, Derek (King's Lynn)
Symonds, J. B.


Mackintosh, John P.
Paget, R. T.
Taverne, Dick


Maclennan, Robert
Palmer, Arthur
Thornton, Ernest


McMillan, Tom (Glasgow, C.)
Parkyn, Brian (Bedford)
Tinn, James


Mahon, Peter (Preston, S.)
Pearson, Arthur (Pontypridd)
Tuck, Raphael


Mahon, Simon (Bootle)
Peart, Rt. Hn. Fred
Urwin, T. W.


Mallalieu, J.P.W.(Huddersfield, E.)
Pentland, Norman
Varley, Eric G.


Manuel, Archie
Price, Thomas (Westhoughton)
Walker, Harold (Doncaster)


Marquand, David
Price, William (Rugby)
Watkins, David (Consett)


Mason, Rt. Hn. Roy
Rankin, John
Watkins, Tudor (Brecon &amp; Radnor)


Mellish, Rt. Hn. Robert
Reynolds, Rt. Hn. C. W.
Weitzman, David


Mendelson, J. J.
Robertson, John (Paisley)
Wellbeloved, James


Millan, Bruce
Robinson, Rt. Hn.Kenneth(St.P'c'as)
White, Mrs. Eirene


Miller, Dr. M. S.
Robinson, W. O. J. (Walth'stow,E.)
Wilkins, W. A.


Milne, Edward (Blyth)
Rose, Paul
Willey, Rt. Hn. Frederick


Mitchell, R C. (S'th'pton, Test)
Rowlands, E. (Cardiff, N.)
Williams, Alan (Swansea, W.)


Molloy, William
Ryan, John
Williams, Alan Lee (Hornchurch)


Morgan, Elystan (Cardiganshire)
Sheldon, Robert
Willis, Rt. Hn. George


Morris, Alfred (Wythenshawe)
Short, Rt.Hn.Edward (N'c'tle-u-Tyne)
Wilson, William (Coventry, S.)


Morris, Charles R. (Openshaw)
Short, Mrs. Renée (W'hampton, N.E.)
Winnick, David


Murray, Albert
Silkin, Rt. Hn. John (Deptford)
Yates, Victor


Neal, Harold
Silkin, Hn. S. C. (Dulwich)



O'Malley, Brian
Silverman, Julius (Aston)
TELLERS FOR THE NOES:


Oram, Albert E.
Slater, Joseph
Mr. Ioan L. Evans and




 Mr. Neil McBride.

New Clause 27

SURCHARGES AND REBATES

As from 19th March, 1968, section 8(2) of the Finance Act, 1964, shall have effect with the substitution for the reference to five groups of a reference to six groups and with the substitution for group (bb) of the following groups—
(b) duties of customs or excise chargeable in respect of spirits (other than power methylated spirits);
(bb) duties of customs or excise chargeable in respect of beer, wine and British wine.—[Mr. Patrick Jenkin.)

Brought up, and read the First time.

Motion made, and Question proposed, That the Clause be read a Second time.

Mr. Gordon Campbell: I hope that the Government will accept this harmless and attractive Clause. It would separate spirits from beer, wine and British wine for purposes of the regulator. The House will know that the regulator is a device for increasing or decreasing a number of indirect taxes between Budgets. It has been used twice since it was brought into existence in 1961.
The Government may Say that this is not very often, but during the last three years there have in any case been Budgets or mini-Budgets every three or four months. Since 1965 the regulator has been divided into five groups. By this Clause, we seek to make those six groups, with spirits as a separate group. This would introduce more

flexibility, so that each group could be considered, when increases or decreases in taxation were contemplated, on its merits.
8.0 p.m.
The spirit with which I am especially concerned, as you will guess, Mr. Deputy Speaker, is Scotch whisky, on which there is at present what can only be described as punitive taxation. An important part of the distilling industry is in the North of Scotland, where it provides employment for men and industrial activity in development areas where such employment and activity are much needed. Governments have been spending considerable sums in recent years on grants and loans and on the building of advance factories to induce industries and firms to go to development areas, and in this situation it is folly to penalise an industry which is already in these areas and flourishing.
About 85 per cent. of the products of the Scotch whisky industry are exported. The Government cannot say, as they sometimes appear to suggest, that whisky sells itself, because it is the hard Work of the industry and its successful selling abroad which have resulted in 85 per cent. of the product going to exports. There is still great scope for increasing these exports—the markets are there—but if high taxation exists in the home country, Britain, and continues to increase, that naturally leads to the taxes against whisky abroad being increased as well.
The Government, regrettably, are raising the heavy tax on whisky in this Finance Bill by another 2s. 6d., and this will mean that the tax on a bottle of whisky will be 40s. The Chancellor is proposing that the empty bottle should cost £2 before any account is taken of its contents. I know that an Amendment which sought to prevent that increase was not selected, but my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) has ably made a strong case for that Amendment in Committee.
In this new Clause we are now trying to help the Chancellor so as to ensure that he will not be in a position, some time in the future, in which he has to raise the spirits duty, with other items in the regulator, when he may not wish to do so. The new Clause will not cost the Government any money, and in that way it is an unusual Finance Bill Amendment. It simply places spirits in a separate group for the purposes of the regulator.
It is significant that the tax on beer is not being raised in this Finance Bill. Thus, beer is now being treated separately from spirits in any event. Why should they not be treated separately for the purposes of the regulator? The duty on spirits could then be considered in the light of the factors at the time affecting the distilling industry and the sale of spirits, on the merits of the case.
There are two other substantial items covered by the regulator, namely, petrol and tobacco. But both come from abroad and do not involve a home manufacturing industry needing support through a firm and healthy home market. Tobacco raises considerations of health, but the Government have made it clear on previous occasions that they have no desire on medical or other grounds to restrict the home consumption of whisky, because, of course, taken in moderation it is an excellent beverage. Imports of tobacco are a heavy burden on our balance of payments—the very opposite of whisky, which is a leading dollar earner.
The increases in taxation since 1965 have had severe effects on the home consumption of whisky. In the 12 months after the 1965 Budget, that is, up to April, 1966, there was a slump of 9·4 per cent. in the home sales of whisky

compared with the previous 12 months. That was the first time in the annual releases for home consumption that there had been a drop since the post-war period of shortage, and it was a very large drop. Later, on 20th July, 1966, there was a further 10 per cent. increase in the tax and during the 12 months following that, up to 20th July 1967, there was a further 5·7 per cent. drop in home consumption. That is why in the last two years a serious situation has arisen, because the gradually increasing consumption at home dropped severely as a result of these two increases in taxation.
One result has been that there has been little extra revenue for the Chancellor, because of these drops in consumption. The Minister of State will note that I have been comparing periods of 12 months with previous periods of 12 months, because that evens out any periods of Budget forestalling. The Treasury often tries to explain what is happening by saying that action has been taken in advance of a Budget. By comparing periods of 12 months, one evens out pre-Budget periods in each of the years in question.
Another result has been that the home market is expanding very slowly, with setbacks from time to time. The Government have been playing a kind of snakes and ladders with the industry, and the growth of consumption at home has been at the rate of a tortoise compared with the growth of exports. Other countries must be amazed by this crippling taxation on a unique industry with a popular product which is a winner in the export markets.
On a previous occasion, the Government gave an incredibly feeble excuse for rejecting the kind of suggestion which we are making tonight. They said that if we were to move from five to six groups for the regulator, there would be a demand for further splitting, possibly going to 26 or even 106 groups, and there would be no limit to the demand for splitting into further groups, and the Government would find the situation getting out of hand. That is completely wrong. So far as I know, there has not been any such demand and there is unlikely to be.
There is no case for tobacco and oil, which are already separately two of the


five groups. There are no other items involving a large vital home industry, such as the spirits distilling industry. I ask the Minister of State to tear up any brief with which he may have been supplied if it simply makes the same feeble excuse.
The test of the Government's intentions towards this great and successful industry is whether they will accept this simple Clause. It would enable them, when indirect taxation is about to be put up by use of the regulator in future, to consider whether the special position of spirits and the distilling industry in general which might obtain at the time deserved such a rise of taxation. It would enable separate consideration of the merits of the case. If the Government will give the industry encouragement of this kind, I believe that the industry can go on to make an even larger contribution to out exports and our balance of payments.

Mr. George Younger: I want to add two points to what my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) has so correctly said about this simple new Clause, which we very much hope the Government will accept. My hon. Friend detailed most accurately the situation of the Scotch whisky industry. I hope that the Government are not deceived by the fact that there is a continuation of revenue from Scotch whisky, although only a little. There was a period, a year ago, when it looked as if it might not increase because the duty had been put up to such an extent. The Government should not imagine that the industry has not suffered through these astonishing increases in duty in recent years.
If the Minister wants evidence of this let him observe the cut-backs in production which have had to be made. Let him observe the parts of Scotland, many of them in the Highlands, with job shortages, where there have been closures of maltings and other ancillary plant in the whisky industry. I am not suggesting that the whole industry is in a terrible state of alarm and despondency, but the point has now been reached when the expansion of the industry is being visibly checked by these continual increases in duty.
This new Clause seeks to look ahead to what may happen if there is the pos-

sibility of the regulator being used again. It is something at which the Government must look carefully. It is a precautionary measure, but I can see circumstances in which the alterations produced by the new Clause would be to the advantage of the Government and the Chancellor. Perhaps the Minister of State can visualise a situation in which he might be placed in the future, when for some economic reason, there is a suggestion that the regulator might be imposed. Let him imagine himself in his Department discussing which parts of the regulator would be most appropriate.
He might find, when considering the alternatives for putting the regulator on one group or another, that he reaches the point of considering the group including Scotch whisky. There would be the awful dilemma as to whether the regulator should be put on that group, which comprises many other items. Would it not be much more advantageous to have Scotch whisky in a separate group, with its separate problems and effects on the balance of payments and employment, particularly in the Highlands, separately assessed? Last year we discussed this and the then Financial Secretary said that this would be awkward because we would have to make the choice between different products. This is what governments and ministers are for. In imposing the regulator the choice has to be made betwen existing groups. There is nothing new in the principle of establishing a sixth group, and it might be helpful to the Chancellor in a difficult situation.

Mr. J. Bruce-Gardyne: Would my hon. Friend not agree that in any case there is no obligation upon the Government to make this invidious choice? If they want to, they can apply the regulator right across the board. This just gives greater freedom.

Mr. Younger: This is the point that comes next. If it is awkward to make a choice between the groups, which I do not accept, this new Clause makes it no more necessary than it is now. I ask the Government to take this point seriously this time. I do not think that the argument was taken seriously on the last occasion. This Clause has the rare distinction of being one which will not cost


a penny to put into effect. It is something which the Government should accept and they might well see the day, before long, when they will be thankful that they did so.

8.15 p.m.

Mr. James Dempsey: I cannot help intervening after listening to the speeches of the hon. Member for Moray and Nairn (Mr. G. Campbell) and the hon. Member for Ayr (Mr. Younger). I know that the hon. Member for Ayr speaks with considerable authority on the subject. He is a Member for whom I have the greatest respect. However, this argument develops round a simple case, that whisky be treated separately for the purpose of the operation of the regulator. Out of this has developed an argument against the Government's decision to increase the tax on whisky. What we are debating is the amount of tax. The effect of the increased duty on sales remains to be seen, and neither hon. Gentleman has been able to produce any facts or figures to show that sales have fallen as a result of the increased duty.
Other factors are operating which have not been mentioned. Neither has given any consideration to the competition coming from the Lowlands. They have overlooked the important factor that the Americans are operating in Scotland on a large scale. In Airdrie they have a new distillery which has cost £5 million, operating in competition with distilleries in the Highlands.

Mr. G. Campbell: I think that the hon. Member is mistaken, because whether a distillery is operated by Americans or Scots, if it is making Scotch whisky, produced in Scotland, it comes within the amounts which I have mentioned. I have given definite proof, because in both recent cases where the tax has been put up, I pointed out that in the following 12 months there had been an immediate drop in consumption.

Mr. Dempsey: The hon. Gentleman went further than that and argued that it was causing unemployment.

Mr. G. Campbell: No.

Mr. Dempsey: The hon. Member said that there was unemployment in some of the distilleries.

Mr. G. Campbell: The hon. Member is wrong again, because I did not say that unemployment was being caused. I said that these distilleries in the Highlands were providing much-needed employment, and it was an industry doing an excellent job, deserving of support.

Mr. Dempsey: If the hon. Member looks at HANSARD he will also see that he said that people were losing their jobs. He will find that a number of these people are in Airdrie, working for the American-owned distillery. This firm could not have got going without the Scottish workers from the Highlands. The local council offered them houses to induce them to come to the development area in North Lanarkshire. That factor is often overlooked.
Another factor is the Road Traffic Act and the introduction of the breathalyser. If the hon. Gentleman will visit any hotel or licensed restaurant on Saturday or Sunday evening, he will be surprised to learn the effects the breathalyser is having on the consumption of whisky.

Mr. G. Campbell: I am grateful to the hon. Gentleman for giving way again. I can help him here. Curiously enough, since the breathalyser came in, home consumption of whisky has slightly increased. The reductions I spoke about were earlier on, following increases in taxation.

Mr. Dempsey: Consumption may have increased in the Highlands, but it has not increased in the southern uplands, especially in the Lanarkshire area. I live and travel there and have very good friends among licensees of premises which sell excisable liquor. The effect of the breathalyser on their sales has been, they assure me, emphatic. This is to be welcomed.
No one can dispute that, in the industrial areas, there has been a decided drop in the sales of whisky because of the breathalyser. That indisputable evidence can be obtained from local police authorities or local hoteliers' associations or licensed trade organisations. It is for this reason that some of us have been asked time and again to try to amend the Road Traffic Act. The hon. Gentleman, therefore, cannot dispute that it has had an adverse effect on the sale of whisky in other parts of the country, if not in the Highlands.
The hon. Gentleman should consider yet another aspect. He said that we were giving aid to industry under the Local Employment Acts. I am all for giving aid to publicans and, indeed, we are giving it to the licensed trade. We are giving grants to hoteliers and to those building hotels in the development areas. We are also giving it to publicans building licensed premises there. As far as I am aware, the whole of Scotland is a development area, excluding Edinburgh. So Scotland as a whole, its hoteliers and publicans are doing very well from the financial assistance by the Government through the Local Employment Acts. The hon. Gentleman should give the Government some credit for that.
I am not arguing whether it is a good or bad thing that whisky should be separated for the purpose of the regulator. I am willing to admit that, once duty is increased on a particular product, it can have the effect of reduced sales to the consumer. When the Conservatives were in power, I argued year after year against the anomalies which were so silly and unjustifiable. But duties are increased deliberately in Budgets to take heat out of the economy. All Governments do it. It is a method of reducing certain types of purchasing power in order to develop the export trade and it is not new.

Mr. Deputy Speaker (Mr. Sydney Irving): Order. The purpose of the new Clause is to redefine classifications and the hon. Gentleman is not relating his remarks sufficiently to it.

Mr. Dempsey: I am relating my remarks to the fact that, if whisky duty is increased, which means increasing the selling price, there is every possibility that sales will go down. I am pointing out that this happens with any commodity and I have quoted examples.

Mr. Deputy Speaker: Order. I am not disputing the correctness of what the hon. Gentleman is saying. I am merely pointing out that it is not related to the new Clause.

Mr. Dempsey: What is related to the new Clause; is the fact that, from a rather simple, naive-looking new Clause, there has resulted a debate on whether the increase in duty on whisky has resulted in

a falling off of sales. That is what the argument is about. If that is out of order, we have all been out of order. I argue that there are other factors to be considered before hon. Members opposite arrive at such an arbitrary decision.

Mr. Alick Buchanan-Smith: I have listened with interest to the hon. Member for Coat-bridge and Airdrie (Mr. Dempsey), as always. But his argument is rather devious. I find it difficult to follow its import. First, he said that the whisky industry is setting up in Coatbridge. It would, therefore, be in his interests to support the new Clause. We are not arguing the interests of the Highlands against the Lowlands. We are arguing the case for the Scotch whisky industry as a whole. I hope that, in appreciation, he will vote with us. He should do so in the interests of his constituents.
Secondly, I found it strange to hear the hon. Gentleman's reference to what my hon. Friend the Member for Moray and Nairn (Mr. G. Campbell) had said about the relationship between the time of application of the regulator and the fall in whisky sales, because the remarks of my hon. Friend referred to the period before introduction of the breathalyser. If the hon. Gentleman will read HANSARD tomorrow, as he exhorted us to do, he will see that the breathalyser had nothing to do with my hon. Friend's argument.
It is the case that total sales have shown a marginal increase, despite the breathalyser, but the hon. Gentleman is mistaken in thinking that all whisky is necessarily sold through hotels and public houses to people who drive cars. There are many other outlets and there has been a marginal increase. We cannot say that the breathalyser has anything to do with the argument put forward by my hon. Friend.

Mr. William Molloy: This is an intriguing debate. The hon. Member for Moray and Nairn (Mr. G. Campbell) argued at one time that he should be supported because sales of whisky were dropping. Then, intervening in the speech of my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey), he said that, despite the breathalyser, sales were going up. I would like one point elucidated. When talking about


sales of whisky dropping, do hon. Members mean output or that sales are dropping in this country but increasing in the export market?

Mr. Buchanan-Smith: I am grateful for that intervention, for it helps to clarify the argument. On every occasion that duty has been increased, there has been a fall-off in the rate of increase in consumption and, therefore, a fall-off in the rate of expansion of the industry, which is a major industry in Scotland. That is on home consumption. But when we raise the duty in this country, other Governments follow suit—that is an established fact—by raising their duties. This has had the effect of reducing the rate of increase of sales in other countries.
Up to the end of last year, there had been a tremendous fall-off in the rate of increase. In March, the Financial Times reported a statement by Mr. W. G. Farquharson, Chairman of Arthur Bell and Sons, the independent company in Perth, which said:
The high duty at home was also reflected in the amount of duty imposed on Scotch overseas. 'Again and again we have seen increases of duty in the U.K. followed by increases in foreign markets. This inevitably affects the growth of our exports'".
The point is that it affects the growth of an export industry with a tremendous financial potential.

8.30 p.m.

Mr. Deputy Speaker: I must remind the hon. Member also that the new Clause deals with redefining the classification. He has not got round to mentioning it yet. I hope that he will do so.

Mr. Buchanan-Smith: If I may finish the point, Mr. Deputy Speaker, it is important to explain why whisky should be separated from other forms of spirit. I hope that I may clarify the point raised by the hon. Member for Ealing, North (Mr. Molloy) by completing the quotation:
To emphasise this point, Mr. Farquharson noted that in 1966 the rise in whisky exports was only about one-third that of previous years and that last year the increase was limited to 3·7 per cent.
That demonstrates what happens when the regulator is applied across the board, giving the Government no freedom to act if it is felt necessary to do so in the interests of an important export industry.

Mr. G. Campbell: My hon. Friend has confirmed what I was saying. I referred to the snakes and ladders game. There has been a gradual increase in home consumption which has had setbacks every time that extra taxation has been applied. Secondly, for reasons of brevity, I did not make the point, which I have made on previous occasions, of informing the House—and the news is usually greeted on all sides—that there are plentiful supplies of Scotch whisky maturing in Scotland, both for export and for home consumption. There is no question of any conflict between home consumption and export.

Mr. Buchanan-Smith: I am grateful to my hon. Friend for his intervention, which helps to clarify the position beyond peradventure for hon. Members opposite. In the Amendment, we are trying to remove any hindrance from one of our best export industries.
The separate grouping of whisky is important for the employment potential in the Scotch whisky industry. On the one hand, the Government have their commitment to raise revenue and they use the regulator in one way and another. On the other hand, we have the problems of regional development and what the Government are doing to try to increase industrial activity in certain areas. That is why I would like Scotch whisky to be separated from other exercisable spirits in the use of the regulator, so that the Government would be given freedom to act if they cared to use it. As my hon. Friend the Member for Ayr (Mr. Younger) said, the decision would still be left with the Government to decide whether to use the regulator in the way we suggest by separating Scotch whisky or applying it across all the different groups over which they have power to apply it.
If it should be against the interest of regional development to increase the regulator and thereby increase the duty of Scotch whisky and threaten regional development and employment in certain limited areas, particularly in the Highlands, by the new Clause the Government would have freedom to exclude whisky from the regulator.
The point is of even greater importance today than when we debated the matter a year ago. My constituency includes the


town of Montrose, which has two distilleries, one of which has been going through a difficult period for. these reasons. Sometimes it is working and sometimes it is not. Sometimes it is taking on men and sometimes it is paying off. That is in an area in which Government policy has not so far succeeded in introducing much new industry and employment. We still depend a great deal on employment in the whisky industry. If we could introduce a greater degree of stability, it would help those in the industry.
Another important reason is that we we are talking of an industry which is already becoming labour intensive. In the type of town of which I am speaking, we have, therefore, already seen a contraction because of greater efficiency in the industry through, for example, the use of more labour-saving methods in maltings and in other ways. We are talking of an industry in which, for economic reasons, there is in any event a contraction of employment.
Therefore, if through the use of the regulator the Government are reducing the consumption of Scotch whisky and thereby affecting production and employment in the industry, they are making a difficult situation even worse. There may not be much at stake in terms of the numbers of jobs, but where those jobs exist their importance is that they occupy a high proportion of the male population in the villages and small towns. That is why I plead with the Minister that although we are not talking of vast numbers of jobs in terms of the motor car or other mass industries of the South, in my part of the world and that of my hon. Friend the Member for Moray and Nairn this is a desperately important matter. We must keep and even expand any jobs that we can get.
I hope that the Minister of State will accept the Amendment. It would simply give him more flexibility and more freedom to act in the future. It could be used in the interests of regional development and of areas such as the North-East and the Highlands of Scotland.

The Minister of State, Treasury (Mr. Dick Taverne): The hon. Member for Moray and Nairn (Mr. G. Campbell) and his hon. Friends the Members for Ayr (Mr. Younger) and North Angus and

Mearns (Mr. Buchanan-Smith) have put the argument in favour of the new Clause very attractively. They have based it on, and they have attacked the problem of the regulator from, the special plight of the whisky industry in Scotland. It was fully debated in Committee, when the case was eloquently advanced by the hon. Member for South Angus (Mr. Bruce-Gardyne) and was answered by my hon. Friend the Financial Secretary.
Obviously, I would be out of order to deal with the particular points which are raised in connection with that industry to the extent that they do not affect the regulator. When, however, it comes to the general prospect for the whisky industry in Scotland, not all those concerned in the industry after the Budget was announced took quite as gloomy a view as hon. Members opposite. For example, on 22nd March, in the Investors' Chronicle, a spokesman for one of the largest distilling companies said:
It will be another blow for the United Kingdom trade, but, as you know, most of our business is overseas and we have the benefits of devaluation on exports.
That is a considerable factor to be borne in mind.
The real question, however, is whether it would be feasible and reasonable to alter the use of the regulator by creating this sixth group of spirits for special treatment. The hon. Member for Moray and Nairn said that in answering the debate I was not on any account to use any of the arguments which had previously been used against similar Amendments. It is always an attractive idea that one's argument should be entirely novel, but it is not something which it is always possible to achieve when the same ground is being gone over in successive Finance Bills.
The first question is whether one can restrict the argument logically to another class, and to one only, that of spirits. The hon. Member for Moray and Nairn said that there have been, and there will be, no other candidates for special treatment. In the first part he is incorrect, because precisely the same sort of representations have been made in favour of splitting up the hydrocarbon oil group. It was suggested that heavy oil should be separately treated. I see no reason why, if spirits are to be separately


treated, beer should not be separately treated from wines. If one enters into this argument there is no reason why the different bands of Purchase Tax should not be separately treated. Why should not one take some of the higher bands and treat these separately from the lower bands?
I do not feel that the optimism of the hon. Member for Moray and Nairn can be shared about whisky being the only candidate for separate group treatment. There is little doubt that one would get a proliferation of groups and the regulator would become something entirely different from what it was designed for. The regulator was never designed to usurp the functions of the Budget, which is brought before the House and considered carefully in great detail in terms of the revenue produced and possibly the danger of diminishing returns, which was the kind of argument considered in Committee, and to determine the relative levels of taxation between individual products. Yet this undoubtedly is what the regulator would become if this new Clause were carried. The regulator was designed as a somewhat blunt instrument for the purpose of the broad questions of supply and demand in the economy. It was designed to be an interim weapon only to deal with the broad questions of supply and demand on a temporary basis until they could be more adequately adjusted as between different products by means of the Budgetary instrument.
If we did what we were invited to do here and said, "Right, it is a decision for the Minister. The Minister should be able to choose and say we will use the regulator for one product and not for others", as the hon. Member for Ayr suggested, what about the general debate? The House is jealous of its privileges and rights in dealing with taxation. One would, by a Statutory Instrument, be dealing with matters which eminently were matters for the Finance Bill as a whole.

Mr. G. Campbell: But, first, this would not isolate whisky. It would be spirits as a whole. Secondly, my argument was that the whisky industry was the only serious candidate since it was a very important home industry with 85 per

cent. of its production going to exports. That does not apply to other items in other groups.

Mr. Taverne: One could probably say that whisky dominates spirits and that it has this high percentage of exports. To some extent, that means that the effect on the industry as whole is less when one uses the regulator than it would be if the entire domestic production of other particular candidates were affected by the use of the regulator. The special position of whisky would not make the effect of the use of the regulator as deleterious on whisky as it might be in other spheres.
The real question is whether one should take particular products in a generally competing group and say that the regulator should apply to some and not to others. In the past the regulator has been made more flexible by the creation of the groups. It is now suggested that it should become a very refined instrument distinguishing between separate items within the groups. Here one has different items competing against each other—alcoholic beverages generally, beer, wines and whisky—and, further, one is attempting to do by means of the regulator what should be done by the Budget.

Mr. G. Campbell: In the Finance Bill the Government are not putting up the duty on beer, but they are putting up the duty on whisky. Therefore, they are doing this separation in the Finance Bill.

Mr. Taverne: I am afraid that the hon. Gentleman did not follow my argument. My argument is that this is the sort of operation that one should do in a Budget, because it can then be considered in detail. But it cannot be considered in detail when one debates a Statutory Instrument, which is what the regulator must be used for. In seeking to differentiate in the treatment of different items of indirect taxation, hon. Gentlemen opposite are to some extent inconsistent with the general tendency of Opposition thought which was to treat indirect taxes all together and very much the same. They are concerned with the same rate, but nevertheless part of the argument is that one should not, in considering indirect taxation, distinguish between individual and particular objects. For these reasons I


ask the House not to accept this new Clause.

8.45 p.m.

Mr. Patrick Jenkin: The hon. and learned Gentleman's reply can only be described as disappointing and unforth-coming. I can only imagine that he has found himself somewhat unsympathetic to the arguments put forward by my hon. Friends by the fact that his drinking arm appears to be out of action, for which we express our sympathy.
I think that the House is indebted to those of my hon. Friends who advanced arguments in favour of the Clause, and I believe that the distilling industry in Scotland, too, will feel indebted to them for the case they have put forward. At this stage I think that it is right for me to declare a personal interest, which I declared in Committee, namely, that I am an employee, but have no stake in the ownership, of a large distilling company.
The case in favour of the Clause and for splitting the regulator can be argued under a number of separate heads, but it seems to me that two stand out. First, by lumping together all wines, beers and spirits, one is dealing with three categories of alcoholic beverage which have widely different characteristics in terms of economics. Let us examine the consumption figures. On doing so for these three categories, one comes up against some surprising results. In the five years 1963–67, home-produced spirits declined from 14·2 million proof gallons to 13·7 million proof gallons. Beer, on the other hand, increased from 28·3 million bulk barrels to 31·3 million bulk barrels. Imported wines increased still further, from 22 million bulk gallons to 28·4 million bulk gallons. By grouping them all together one is dealing with different products with different histories, and a duty change which may be appropriate for one is not appropriate to the other.
Linked with that argument—and this applies particularly to imported wines— there is the fact that one is a product which is wholly home-produced, while the other is a product which is virtually entirely imported. The point was made clearly in a letter to the Financial Times from Mr. P. J. Woodhouse, Secretary of the Scotch Whisky Association, who said:

… This Association has drawn the attention of successive Chancellors … to the situation created by the imposition of a much higher duty on home-produced spirits than that applicable to imported wines. As an illustration of the position, the current duty on fortified wines imported at a strength of say 35° is equivalent to 129s. 3d. per proof gallon, whereas that applicable to home-produced spirits is 342s. 9d. per proof gallon … As the Association said to the Chancellor recently, it is difficult to understand a policy which encourages imports at the expense of home production. Consequently, one can hardly let his comment pass without suggesting that he might consider practising what he preaches.
The argument there is that it cannot be right that the blunt instrument, and such it is—the Minister of State so described it—of the regulator should apply equally to products which are wholly imported and those which are entirely home-produced. That is one argument.
The other—and it is one to which I referred during the Budget debate—is that, as my hon. Frien the Member for Moray and Nairn (Mr. G. Campbell) rightly said, in this Budget the Chancellor has increased the duty on wines and spirits, but has not increased it on beer. He has, therefore, put himself in the position of being unable to reverse by the regulator what he has done in the Budget unless the Clause is accepted if the situation requires the use of the regulator.

Mr. Taverne: With respect, if the Clause were accepted and my right hon. Friend wanted to reverse the position between wines and beer it would be necessary to have a separate group for each.

Mr. Jenkin: The real competitor of whisky is beer. There are advertisements which show a glass of beer and say
A double Scotch at half the price.
The point is that he could not put it back. Still more, if the situation requires the use of the regulator in an upward direction—which heaven forfend— the Chancellor would have no alternative but to increase the duty on whisky yet again in order to get the benefit of the increased duty on beer. Does the Chancellor want to be in that position? Is that the sort of weapon he wants to have in the event of his requiring to use the regulator?
The Minister of State argued the case for the five groups. He argued on the


footing that the regulator should always be operated in respect of all the groups. We have five groups. How can the Treasury contend that five is the right figure, and that six, or even seven would be undesirable?
When the Measure was first introduced, an argument was put forward that the power which Parliament would be giving to the Government to exercise by order should not extend to the full range of powers of taxation which could be exercised only by Parliament. I agree. But we have come to realise that this is

a valuable flexible weapon in the Chancellor's armoury and all we are seeking to do is to make it marginally more flexible. The Minister of State has, on the contrary, shown himself to be remarkably inflexible, and in the circumstances it is right that the Clause should be pressed to a Division. I therefore ask my hon. and right hon. Friends to support it in the Lobby.

Question put, That the Clause be read a Second time: —

The House divided: Ayes 124, Noes 206.

Division No. 259.]
AYES
[8.52 p.m.


Alison, Michael (Barkston Ash)
Hall, John (Wycombe)
Peel,, John


Baker, Kenneth (Acton)
Hall-Davis, A. G. F.
Percival, Ian


Balniel, Lord
Harrison, Brian (Maiden)
Pike, Miss Mervyn


Bell, Ronald
Harrison, Col. Sir Harwood (Eye)
Pink, R. Bonner


Biffen, John
Harvey, Sir Arthur Vere
Pounder, Rafton


Black, Sir Cyril
Harvie Anderson, Miss
Powell, Rt. Hn. J. Enoch


Boardman, Tom (Leicester, S.W.)
Hawkins, Paul
Pym, Francis


Brewis, John
Heald, Rt. Hn. Sir Lionet
Ramsden, Rt. Hn. James


Brinton, Sir Tatton
Higgins, Terence L.
Rawlinson, Rt. Hn. Sir Peter


Bromley-Davenport.Lt.-Col.Sirwalter
Hirst, Geoffrey
Rhys Williams, Sir Brandon


Buchanan-Smith,Alick(Angus,N&amp;M)
Holland, Philip
Ridley, Hn. Nicholas


Bullus, Sir Eric
Hornby, Richard
Ridsdale, Julian


Burden, F. A.
Hunt, John
Rodgers, Sir John (Sevenoaks)


Campbell, B. (Oldham, West)
Jenkin, Patrick (Woodford)
Rossi, Hugh (Hornsey)


Campbell, Gordon (Moray &amp; Nairn)
Kimball, Marcus
Royle, Anthony


Carlisle, Mark
King, Evelyn (Dorset, S.)
Scott-Hopkins, James


Cary, Sir Robert
Kirk, Peter
Sharples, Richard


Chichester-Clark, R.
Knight, Mrs. Jill
Shaw, Michael (Sc'b'gh &amp; Whitby)


Clegg, Walter
Langford-Holt, Sir John
Silvester, Frederick


Cooke, Robert
Longden, Gilbert
Sinclair, Sir George


Cooper-Key, Sir Neill
McAdden, Sir Stephen
Smith, Dudley (W'wick A L'mington)


Corfield, F. V.
Maclean, Sir Fitzroy
Smith, John (London &amp; W'minster)


Crowder, F. P.
Macleod, Rt. Hn. Ian
Stainton, Keith


Dance, James
McMaster, Stanley
Stoddart-Scott, Col. Sir M. (Ripon)


Dean, Paul (Somerset, N.)
Maddan, Martin
Summers, Sir Spencer


Deedes, Rt. Hn. W. F. (Ashford)
Maginnis, John E.
Taylor, Sir Charles (Eastbourne)


Eden, Sir John
Marten, Neil
Temple, John M.


Elliot, Capt. Walter (Carshalton)
Maude, Angus
Thatcher, Mrs. Margaret


Elliott,R.W.(N'c'tle-upon-Tyne,N.)
Mawby, Ray
van Straubenzee, W. R.


Emery, Peter
Maxwell-Hyslop, R. J.
Waddington, D.


Errington, Sir Eric
Maydon, Lt.-Cmdr. S. L. C.
Walker-Smith, Rt. Hn. Sir Derek


Farr, John
Mills, Peter (Torrington)
Wall, Patrick


Fortescue, Tim
More, Jasper
Walters, Dennis


Fraser,Rt.Hn.Hugh(St'ford &amp; Stone)
Morgan, Geraint (Denbigh)
Ward, Dame Irene


Galbraith, Hn. T. G.
Munro-Lucas-Tooth, Sir Hugh
Williams, Donald (Dudley)


Glover, Sir Douglas
Murton, Oscar
Wilson, Geoffrey (Truro)


Goodhart, Philip
Naharro, Sir Gerald
Wolrige-Gordon, Patrick


Goodhew, Victor
Nicholls, Sir Harmar
Younger, Hn. George


Gower, Raymond
Noble, Rt. Hn. Michael



Grant, Anthony
Onslow, Crarriey
TELLERS FOR THE AYES:


Grieve, Percy
Osborne, Sir Cyril (Louth)
Mr. Reginald Eyre and


Griffiths, Eldon (Bury St. Edmunds)
Page, Graham (Crosby)
Mr. Bernard Weatherill.


Gurden, Harold
Pearson, Sir Frank (Clitheroe)





NOES


Abse, Leo
Blackburn, F.
Carmichael, Neil


Albu, Austen
Boardman, H. (Leigh)
Carter-Jones, Lewis


Allaun, Frank (Salford, E.)
Booth, Albert
Coe, Denis


Alldritt, Walter
Boston, Terence
Coleman, Donald


Anderson, Donald
Braddock, Mrs. E. M.
Concannon, J. D.


Archer, Peter
Bray, Dr. Jeremy
Corbet, Mrs. Freda


Atkins, Ronald (Preston, N.)
Brooks, Edwin
Crawshaw, Richard


Atkinson, Norman (Tottenham)
Brown, Hugh D. (G'gow, Provan)
Cronin, John


Bacon, Rt. Hn. Alice
Brown,Bob(N'c'tle-upon-Tyne,W.)
Cullen, Mrs. Alice


Barnett, Joel
Brown, R. W. (Shoreditch &amp; F'bury)
Dalyell, Tam


Baxter, William
Buchanan, Richard (G'gow, SP'burn)
Davidson,James(Aberdeenshire,w.)


Bence, Cyril
Butler, Herbert (Hackney, C.)
Davies, Harold (Leek)


Bidwell, Sydney
Callaghan, Rt. Hn. James
Davies, Ifor (Gower)


Bishop, E. S.
Cant, R. B.
Dempsey, James




Diamond, Rt. Hn. John
Jones, Dan (Burnley)
Paget, R. T.


Dickens, James
Jones, J. Idwal (Wrexham)
Palmer, Arthur


Doig, Peter
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Pardoe, John


Driberg, Tom
Kerr, Dr. David (W'worth, Central)
Parkyn, Brian (Bedford)


Dunn, James A.
Kerr, Russell (Feltham)
Pearson, Arthur (Pontypridd)


Dunwoody, Mrs. Gwyneth (Exeter)
Lawson, George
Pentland, Norman


Dunwoody, Dr. John (F'th &amp; C'b'e)
Leadbitter, Ted
Price, Christopher (Perry Barr)


Edelman, Maurice
Ledger, Ron
Price, Thomas (Westhoughton)


Edwards, Robert (Bilston)
Lee, Rt. Hn. Frederick (Newton)
Price, William (Rugby)


Edwards, William (Merioneth)
Lee, John (Reading)
Rankin, John


Ellis, John
Lestor, Miss Joan
Reynolds, Rt. Hn. G. W.


English, Michael
Lever, Harold (Cheetham)
Roberts, Albert (Normanton)


Evans, Albert (Islington, S.W.)
Lewis, Arthur (W. Ham, N.)
Robertson, John (Paisley)


Evans, loan L. (Birm'h'm, Yardley)
Lewis, Ron (Carlisle)
Robinson, Rt. Hn. Kenneth (St.P'c'as)


Faulds, Andrew
Lomas, Kenneth
Robinson, W. O. J. (Walth'stow, E)


Fernyhough, E.
Loughlin, Charles
Rose, Paul


Fitch, Alan (Wigan)
Luard, Evan
Rowlands, E. (Cardiff, N.)


Fletcher, Raymond (Ilkeston)
Lubbock, Eric
Ryan, John


Fletcher, Ted (Darlington)
Lyon, Alexander W. (York)
Sheldon, Robert


Foley, Maurice
Lyons, Edward (Bradford, E.)
Shore, Rt. Hn. Peter (Stepney)


Foot, Michael (Ebbw Vale)
McBride, Neil
Short, Rt. Hn. Edward (N'c'tle-u-Tyne)


Forrester, John
McCann, John
Short, Mrs. Renée (W'hampton, N. E.)


Fowler, Gerry
MacColl, James
Silkin, Hn. S. C. (Dulwich)


Freeson, Reginald
MacDermot, Niall
Silverman, Julius (Aston)


Galpern, Sir Myer
McGuire, Michael
Slater, Joseph


Gardner, Tony
McKay, Mrs. Margaret
Small, William


Gray, Dr. Hugh (Yarmouth)
Mackenzie, Alasdair (Ross&amp;Crom'ty)
Spriggs, Leslie


Gregory, Arnold
Mackintosh, John P.
Steel, David (Roxburgh)


Crey, Charles (Durham)
Maclennan, Robert
Steele, Thomas (Dunbartonshire, W.)


Griffiths, Eddie (Brightside)
McMillan, Tom (Glasgow, C.)
Symonds, J. B.


Griffiths, Will (Exchange)
Mahon, Peter (Preston, S.)
Taverne, Dick


Grimond, fit. Hn. J.
Mahon, Simon (Bootle)
Thornton, Ernest


Hamilton, James (Bothwell)
Mallalieu, J. P. W. (Huddersfied, E.)
Tinn, James


Hamilton, William (Fife, W.)
Manuel, Archie
Tuck, Raphael


Hamling, William
Marquand, David
Urwin, T. W.


Hannan, William
Mason, Rt. Hn. Roy
Varley, Eric G.


Harrison, Walter (Wakefield)
Mellish, Rt. Hn. Robert
Wainwright, Richard (Colne Valley)


Haseldine, Norman
Mendelson, J.J.
Walker, Harold (Doncaster)


Hazell, Bert
Millan, Bruce
Watkins, David (Consett)


Heffer, Eric S.
Miller, Dr. M. S.
Watkins, Tudor (Brecon &amp; Radnor)


Henig, Stanley
Milne, Edward (Blyth)
Weitzman, David


Herbison, Rt. Hn. Margaret
Mitchell, R. O. (S'th'pton, Test)
Wellbeloved, James


Hooley, Frank
Molloy, William
White, Mrs. Eirene


Hooson, Emlyn
Morgan, Elystan (Cardiganshire)
Wilkins, W. A.


Howell, Denis (Small Heath)
Morris, Alfred (Wythenshawe)
Willey, Rt. Hn. Frederick


Howie, W.
Morris, Charles R. (Openshaw)
Williams, Alan (Swansea, W.)


Hoy, James
Moyle, Roland
Williams, Alan Lee (Hornchurch)


Huckfield, Leslie
Murray, Albert
Willis, Rt. Hn. George


Hughes, Roy (Newport)
Neal, Harold
Wilson, William (Coventry, S.)


Hunter, Adam
Oakes, Gordon
Winnick, David


Hynd, John
O'Malley, Brian
Winstanloy, Dr. M. P.


Jackson, Colin (B'h'se &amp; Spenb'gh)
Oram, Albert E.
Yates, Victor


Jackson, Peter M.
(High Peak)
Orme, Stanley


Jeger, Mrs. Lena (H'b'n&amp;St.P'cras, S.)
Oswald, Thomas
TELLERS FOR THE NOES:


Johnson, Carol (Lewisham, S.)
Owen, Dr. David (Plymouth, S'tn)
Mr. Ernest Armstrong and


Johnson, James (K'ston-on-Hull W.)
Page, Derek (King's Lynn)
 Mr. Joseph Harper.

New Clause 28

AMENDMENT OF PARAGRAPH 1 OF SCHEDULE 11 TO THE FINANCE ACT 1965.

Paragraph 1(1) of the 11th Schedule to the Finance Act 1965 shall be amended by the addition, at the end of sub-paragraph (d)(iv), of the words: —
'Provided that for the purpose of this sub-paragraph (iv) a company resident in the United Kingdom, the whole of whose share capital is owned by another company resident in the United Kingdom, shall not be regarded as a subsidiary'.—[Mr. Patrick Jenkin.]

Brought up, and read the First time.

Mr. Deputy Speaker (Sir Eric Fletcher): With this new Clause, we will

discuss new Clause 29 "Loan interest paid by close companies".

9.0 p.m.

Mr. Patrick Jenkin: I beg to move, That the Clause be read a Second time.
One of the effects of the Corporation Tax system was that it created a great gulf between those payments by a company which were to be regarded as charges on a company's income and, therefore, deductible for Corporation Tax purposes, and those payments which were to be treated as distributions and to attract the distributed tax. Therefore, it was essential that, when the tax was drawn up, companies should not be able to disguise what were distributions by dressing them up as charges.
The law on this is contained in paragraph 1(1) of the Eleventh Schedule to the Finance Act, 1965, sub-paragraph (d) of which disallows loan interest which would otherwise be a charge from being a charge and forces it to be treated as a distribution in four cases. Three of them are not relevant, but one is, and it is to that that the Clause is directed. It is the case where interest is paid by a United Kingdom subsidiary company of an overseas parent on securities which are issued by the subsidiary to the parent. Alternatively, it is disallowed where the United Kingdom subsidiary pays the interest to an overseas subsidiary, both of them being subsidiaries of the same parent company.
The reason for the disallowance is obvious. It is a way of reducing the United Kingdom company's liability to Corporation Tax by allowing a deduction for interest when, in fact, the money is a remittance of profits to the overseas parent, and, therefore, a dividend. The paragraph does not apply the other way round, to a payment by a United Kingdom parent to an overseas subsidiary. That would have to be an interest payment. It could not be a dividend. There cannot be a dividend payment from a parent to its own subsidiary. Therefore, it would be illogical to treat it as a distribution.
New Clause 28 covers an extension of that principle where there is a payment of loan interest by one subsidiary resident in the United Kingdom to another subsidiary resident overseas, but where both subsidiary companies are subsidiaries of a United Kingdom resident parent company. The argument in favour of it is that in that case, too, there can be no question of the loan interest being a disguised dividend payment. Such a payment could not be a dividend, and it is argued, therefore, that it ought not to be treated as a distribution.
That is the effect of the amendment which would be embodied if the Clause were accepted, As the paragraph of the Schedule stands, such a payment of loan interest is treated as a distribution. This is highly artificial and it incurs a severe taxation penalty by being so treated. The Clause is intended to remedy this, and I hope that it will commend itself to the hon. and learned Gentleman.
I am grateful that we have been permitted to discuss new Clause 29 with this one. Although this, too, covers loan interest, it does so in entirely different circumstances and raises an entirely different point. In this case, we are dealing with the disallowance of loan interest paid by a close company to a participating director of that company. Paragraph 9 of the Eleventh Schedule of the 1965 Act gave an extended meaning to the word "distribution" as it related to close companies. The disallowance of the interest as a charge imposes very severe fiscal penalties on close companies.
The penalty is not only that it is not deductible for Corporation Tax but also that it comes into the shortfall assessment and possibly even the Surtax apportionment under the close company rules. The purpose of the rule is clear—to prevent profits being taken out of the close company in the form of a deductible charge— but this is a clear case—this is the burden of my argument—of the Government's obsession with tax avoidance now operating to the detriment of the much wider economic interests of the country.
Indeed, few of their fiscal innovations have done more damage than the penal provisions applying to close companies. My party has already made it clear on numerous occasions that it will be our purpose to shift the emphasis from restrictive penal, anti-avoidance provisions to measures which will encourage investment, expansion and innovation. I hope that loan interest paid to participating directors will be early on the list.
The Clause would allow loan interest to be deductible up to the limit which would be a reasonable consideration for the loan made to the company and we have added another limitation, that the loans themselves must not exceed the equity capital of the company, including the reserves. When this matter was debated in 1965, the argument was put to the Government—

Mr. Michael Shaw: My hon. Friend referred inadvertently to the equity capital; I think that he meant the issued capital.

Mr. Jenkin: I accept the correction with thanks. The issued share capital and the reserves is the limitation imposed in the new Clause.
On 22nd June, 1965, in a debate on the whole subject of loan interest and other deductions, I said, in an intervention in a speech of the Chief Secretary:
What is the objection to allowing the first slice of interest, up to a reasonable commercial rate, in all these cases? 
The Chief Secretary replied:
The objection is that if this is, in effect, a return on capital it should be treated as a return on capital."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1633–4.]
That entirely begs the question. If the investment in the company is in the form of a loan, there is no entitlement to the benefits which would accrue if it were in the form of an equity share; that is to say, there is a right to payment only of the sum loaned and a right to the repayment of a fixed interest.
If the shareholder and the debenture holder, let us say, were the same man, it would be up to him. He could disguise the one as the other, but to the extent to which the loan interest represents the reasonable commercial rate, I see no reason why it should not be treated with all the characteristics of loan interest paid to ordinary companies. It is quite different from a return on equity capital.
The case for changing the law can be simply slated. Close companies find great difficulty in raising new capital. Either they are forced to dilute the equity by going outside and bringing in new capital, or they wish to raise the money by loans. The obvious people who might wish to lend to a close company are those who already have a big interest in its success. Under the law as it stands this is impossibly expensive. The existing directors cannot afford to make loans to the company because of the way in which the interest is treated under our legislation.
Consider the case of a company which is pioneering in a technologically advanced sphere with a high risk project. It might wish to raise part of the capital by loans. The outsider might not be interested in lending the company money in view of the high risk involved, so that the only source may be the existing participators. One director may be able to put up the money while the other director does not have money to put up but has the technical expertise which is vital to the firm.
In such circumstances, it would be wrong for the ownership of the company to be weighted more in favour of the director with the money, to the detriment of the other director, who has the technological expertise. Although he might be prepared to put up some money, it is probably impossibly expensive for him to do so. This cannot be right in the interests of such a firm or for the economy.
This state of affairs places grave obstacles in the way of a company which wishes to expand and raise new capital and there is mounting evidence that this is the result of Government policy. The Government could, by accepting new Clause 29 and making this one concession, show that they are genuinely willing to take a step which would be widely recognised as evincing their intention to make amends in the face of the damage that has already been done. It would also show that they are ready to take a more favourable view of the enterprise of smaller companies.
I hope that the Minister of State will grasp this opportunity of doing something for small enterprises.

Mr. Michael Shaw: I wholeheartedly support the case adduced so convincingly by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) for the new Clause. I can say from experience that there is mounting evidence that the close company legislation is proving a serious hindrance to the development of close companies. This has been accentuated by the general financial policy of the Government.
As my hon. Friend said, close companies are restricted as to where they can go for credit. Normally, they do not go to the public. One of their natural sources is the banks. If they succeed in getting their requirements from that source, all well and good; and the interest is allowed against the profits and there is no withholding tax, either.
Since the Labour Party came to power, however—and particularly since the middle of 1965—there has been an almost continuous credit squeeze. This has attacked growing companies, which are usually close companies. If close companies are to be dynamic and are to goad established industry, they must be effective in grabbing their fair share of the


market and establishing new markets. For this they must have capital to expand. Traditionally, the banks have supplied that capital because they have known their customers, when a project is a good one and when it is in good hands. In those circumstances, they have been prepared to back their judgment. But nowadays they are not free to do this, so close companies very often have to look elsewhere for their money.
9.15 p.m.
As my hon. Friend has said, the directors, or those in control of the company —which is the same thing, as a rule—very often have to look into their own resources. That need not be themselves. It might be their wives, their parents—or, indeed, their grandparents or their children, or their brothers and sisters or partners—speaking from memory, I think that I have covered all the categories. They have a fairly wide field because, for this purpose, their associates are treated as being equivalent to the directors.
Bank credit being cut off, their natural source is one of their near relatives, to whom they may say, "We are expanding rapidly. Because of this Government"— and there is usually an adjective that goes with that, but we will let it pass— "we cannot borrow from the bank, although that is what we should like to do. Can you lend us some money to cover the next two years, when the money will begin to flow back?"
Normally speaking, the relatives, if they have the confidence and the money, in all probability lend the money, but this raises a very serious problem, because the fact that the money comes from these near relatives means that although the rate of interest may itself be reasonable and commercial, because of its treatment for tax purposes when it is paid by the close company it becomes a very high rate of interest, as not only is it not allowed as a charge against profits but it suffers from the withholding tax. It becomes an exorbitant rate.
This is a handicap on close companies borrowing from the natural source of borrowing from which no other type of company suffers. It is absolutely wrong. If we got rid of the withholding tax altogether, most of our difficulties in this respect would go, as would very many

others. But I cannot discuss that tonight. I sincerely hope that, for the good of the future of close companies, which are bound up so closely with the future of the country, the Minister of State will see fit to accept the new Clause.

Mr. John Smith: New Clause 29 seeks to put right a piece of legislation which has been presented as a measure to prevent avoidance, but directors, or those who control small companies, often put up the money in the form of loans for reasons that have nothing to do with avoidance at all but are a form of self-denial.
Many small companies are arranged around a person with some money, and one, two or three people with no money but with technical ability. The man with the money very sensibly wishes to give his colleagues a share of the business. In order to give them a proper share, he does not swamp them by putting up the whole of his contribution, which is money rather than technical ability, in the form of equity capital. He forgoes his equity profit in order that his colleagues may have it, and puts up his capital in the form of loan capital. I should have thought that this was a form of redistribution which the party opposite would want to support and not to hinder.
Another point is that small and developing companies cannot always forecast accurately their need for capital. Their needs fluctuate—for example, a project may not mature. If they can get the money from the bank, well and good, although a bank, even without a credit squeeze, will not be at all anxious to lend for a period of longer than, say a year or 15 months. If they cannot get it from the bank, their only source for fluctuating capital is in the form of loans from the directors or those who control the company.
It would be quite inappropriate, in such circumstances, to put up the money in the form of equity capital, which is permanent capital and cannot be withdrawn if the need for that money disappears. Many companies in the past, for example, the steel companies before the war, got into very great difficulties through over-capitalisation. I should have thought the party opposite, who are engaged on so many projects designed to


improve the efficiency of business, would have approved this new Clause for that reason, also.
On these two grounds, I hope that we can persuade the party opposite that this new Clause is not designed to create a loophole. Indeed I do not regard it even as giving a concession, but rather as removing something which is not only unfair but damaging to our economy. This is a sincere proposal, designed to help small, developing companies, which, in turn, are of very great help to our economy.

Mr. W. R. van Straubenzee: The case for new Clause 29 has been so persuasively argued that I cannot believe that the Minister of State, when he replies—the hon. and learned Gentleman smiles. I am not sure whether he smiles in anticipation, or if it is the smile which a cat gives before it kills a mouse. That we shall soon discover. He has a very powerful case to answer.
I add my personal experience to the experience of my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) in saying that the provisions which this Clause is designed to remove are very inhibiting to the kind of business which has been clearly outlined by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin).
Some of us were fairly actively engaged in this matter in 1965 and can remember how absolutely obsessed, when it was under discussion, the Chief Secretary was with tax avoidance. There was some reason at that time for that, for hon. Members will recall the slightly unhappy events which took place in some exempt private companies, as they used to be, relating to loans which would be covered by this Clause. There was some justification for the attitude of the Chief Secretary in 1965. I draw attention to the limitations so carefully put into new Clause No. 29. It is a very modest provision. This is absolutely right, but it is so modest that I cannot believe that the equity of it will not strike any reasonably fair-minded person.
In our present set-up it is in the field of these close companies that the new techniques and thrusting ideas are given birth in the form of a company. This can be seen over and over again. By virtue

of the fact that they are expanding in that way and of the difficulty of providing the appropriate finance, they are desperately reliant on loans from those who have faith in them. Overwhelmingly, they come within the terms of people very severely penalised as the law stands. In the general interests of the nation, in the sense that we want to encourage these new smaller companies to break into the technologies, this is a provision which ought to commend itself on general grounds to the Treasury Bench.

Sir D. Glover: I congratulate my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on the able way in which he moved new Clause 28. I want to speak particularly to new Clause 29. I speak from my own experience of close companies. About 20 years ago I formed a very small company. It had to be small, because every other member who was to be active in the company, and who was to be a director, because of various family circumstances, did not have the capital available to put into the company at that time. Therefore, if the company was to get off the ground without being dominated either by me or by any single person, all the rest of the capital had to go in the form of loan.
I very much doubt whether that company, which afterwards became very successful, would ever have got off the ground under the conditions which were brought in by the 1965 Act. I doubt very much whether, under the conditions brought in by the 1965 Act, I or anybody else would have been prepared to put the money upon loan and be subjected to all the disadvantages arising under the 1965 Act.
My hon. Friend has done a worthwhile job in bringing the Clause before the House. I hope that the Minister of State will accept it. If I may offer a slight note of criticism of some of my hon. Friends, I do not think that the inhibiting factor comes with a company which has been going for five or 10 years and which has established a commercial reputation. Such a company, even if it is a close company, can borrow in the normal market—from a bank or from other organisations. Where this is inhibiting is on a new company which has only brains, imagination and courage.


People do not want to back such a company with loans, unless they have some reason for doing so.
In my case, the reason was that I did not want to dominate the company, because it was a family business and over the years it would have led to feelings of jealousy if I had dominated it. It was, therefore, arranged that I put in a good deal of loan money. In other businesses it may be that one man has money and the remaining directors—young men, perhaps—have the know-how. In another case it may be that the father, the mother or some other member closely linked to those concerned has some money that can be used to back an idea, because that is what it is at that stage. It is a business which has an idea, the imagination and the courage to think that something can be made to grow.
Therefore, the money advanced to such a company is not advanced at that moment on any commercial criteria. It is advanced because those who put up the money have faith in the ability of the young men who are to run the company. On the other hand, that faith is not entirely philanthropic. It may be that this is the only liquid money they have. They cannot afford to put it into a company if, by so doing, they will reap all the disadvantages that now arise under the 1965 Act.
If the Labour Government really believe what they keep paying lip-service to—namely, in a mixed economy, in encouraging the entrepreneur, the young man with ideas, to get going in the growth of ideas that are always working through in a modern society—I do not see how they can refuse to accept the Clause, which was moderately put forward and which is moderate in its effect, but which would remove an enormous amount of inhibition from what the nation needs more than anything else, namely, the courage of the entrepreneur to take a chance and get ahead.

9.30 p.m.

Mr. Taverne: May I assure the hon. Member for the Cities of London and Westminster (Mr. John Smith) that no one suspects for a moment that these new Clauses are put forward with the idea of providing loopholes? Whether they have that effect is a different pro-

position. It often happens that a solution is found which at the time seems innocent, but which, nevertheless, can drive a coach and horses through Income Tax or other tax legislation.
May I tell the hon. Member for Wokingham (Mr. van Straubenzee) that I smiled because he started one sentence, which he did not complete, by saying that he could not believe that I would —and I am sure that he was about to say not be moved by the arguments and be able to refuse to accept the new Clause. It would be somewhat naïve to believe that on each occasion the eloquence of arguments moves the Treasury to accept everything put forward.
Clause 28 attempts to achieve something which one would obviously like to achieve if there were no possibility of amounts of interest being paid overseas which should not be treated as distributions. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) spoke of fellow subsidiaries. I think that he recognises that it is perfectly possible for two companies to be fellow subsidiaries, although for one still to be a substantial shareholder in the other. It is perfectly possible for Company A to own all the shares of Company B, but only a small part of the shares of Company C, the rest being owned by Company B. Both would then be subsidiaries, but it would still be possible for one subsidiary to be a substantial shareholder in the other.
The new Clause suggests where interest payments should not be treated as distributions. Unfortunately, the suggested solution does not circumvent the difficulty. A non-resident Company A could wholly own a subsidiary resident Company B, which in turn had a wholly-owned subsidiary resident Company C. Under the terms of the new Clause, Company C would not be regarded as a subsidiary of Company A. In that case, Company C could pay interest to its overseas grandparent, to call it such, Company A, and still get a deduction of relief which could not be granted to the subsidiary, Company B. It would be necessary to prevent this result from, being achieved, because it would then be very easy for subsidiary B to route interest payment to its parent A through C, and in this case the whole


of the design of the Corporation Tax structure would be circumvented. That solution would be open to the widest possible abuse.
The majority of the speeches were made about new Clause 29 and it was about that that the widest concern was felt. Under Corporation Tax it is necessary to prevent the profits of a company from being reduced for tax purposes by what in substance are distributions of profits.
This is not a new problem. It existed previously under Profits Tax, and it was one which was met by similar rules, though not quite as stringent, because under the original rules the Profits Tax provisions provided that interest paid to a director, other than a whole-time service director, by a director-controlled company was disallowed in computing the company's profits for Profits Tax. This was extended, in a way to which a number of hon. Members, and some of my colleagues in the past, have objected, by the reference to associates. The whole scheme would have been blown wide open if this reference to associates was not there, by the loan being made, not by the controlling director, but by his wife or children.
Obviously the provision gives rise to difficulties. There are clearly cases when a payment of interest should be allowed for deduction. These are cases of a public company which pays debenture interest in computing its profits for Corporation Tax. There are other cases, where payments for interest on loan capital provided are ways in which the scheme is circumvented. There are cases here where this would blow Corporation Tax sky high.
The difficulty, as the Chief Secretary has explained, is that it is a matter of how far one should go. If one goes to the extent of preventing tax avoidance completely, there will be some bona fide hard cases. If one goes completely the other way, one opens the door to tax avoidance. One has to arrive at a reasonable half-way house. I recognise the difficulties about this. A decision was taken earlier that we would look to see how far hard cases came to light, how far there were complaints about the operation of this provision in individual cases.
It was decided that this would be reviewed at the end of the year. The Inland Revenue has not had many complaints of cases of individual hardship. It has not had many cases emerging in practice where the rule has been criticised as inequitable. Cases which have been brought forward will be considered, and at the end of the year the whole position of these loans will be reviewed.

Mr. van Straubenzee: Will the hon. and learned Gentleman not recognise, in his usual very fair way, that it would be unlikely, in the situation so clearly set out from this side of the House, that one would take one's troubles to the Inland Revenue? It would be the last body to whom one would turn.

Mr. Taverne: If the tax is working in this way and individual cases of hardship arise, representations will be made. In this case, representations have been made in general, but it has been very hard to get individual cases brought forward, showing that the tax is working inequitably. A few cases have been produced and will be reviewed. It is a matter which has to be carefully considered. The new Clause will go much too wide, because its effect will apparently be to limit the loans by reference to the authorised, and not the issued, share capital. Therefore, the limit would be very high. The rule will be examined before the end of the year, and individual cases will be considered carefully.

Mr. Hirst: The hon. and learned Gentleman is relatively new to this, but he is a little naive if he imagines that the House will accept this sort of reply on a major matter of this character. We had a long discussion on this matter in 1965, and it is one upon which my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) is absolutely right. He speaks from great experience. Mine is more modest, but it confirms his case.
What is the difficulty in this case? If the hon. and learned Gentleman really thinks that in this sort of situation people will write letters to the Treasury, he is being too naive for words. I do not know where to begin to educate him. He must be educated if he is to take part in finance debates, because we cannot take this. There will be a rumpus if we are to have that sort of reply.
The hon. and learned Gentleman must know what he is talking about, not from the angle of a Treasury brief—which I would not question—but from practice. He must learn what happens and what makes business tick. After all this time— they were extremely uneducated a few years ago—the Government ought to be learning that the private or close companies are the genesis of everything, and that if we do not encourage them, we shall not get big businesses or even mergers. Not even Sir Frank Kearton can do it, which is saying something. One must operate from the beginning.
I have seen time and again in my business life and in my constituency smaller companies of this character being allowed to grow and ultimately becoming the great companies doing our export trade. They have not done it by rules, specifications and the application of the principles of the Labour Party as instanced in these debates. They never could have done. But the Government are so prejudiced by this business of tax avoidance.
If we can only encourage close and private companies to grow, what on earth would it matter in that context if one or two people, so to speak, got away with it? Until the Government realise this factor, they will get nowhere. The great majority of people operating our individual businesses are too busy and too keen to worry about a little tax avoidance. This is a prejudice in the minds of the Government. Of course, there will be the smart chap somewhere and, whatever we do, he will be there. But he is not to be worried about. Just because one or two people will do something which is not quite ethical does not mean that the whole lot should be clobbered.
My hon. Friend the Member for Ormskirk (Sir D. Glover) was right in saying that in many instances one cannot get one's business to grow easily. One cannot simply go to banks or finance houses in the City because, at that early stage, one has only an idea, something

sound but which one cannot sell the outside world yet. But many people—friends and the family—will say, "I do not really know whether this is a good idea but I think this man should be encouraged and I will help him and put forward money." Is that a crime? How are we to get our businesses growing if the Government do not understand the principle behind the whole thing? How dare the hon. and learned Gentleman present the House with such an answer? He should be ashamed of himself.

Mr. Patrick Jenkin: I entirely share the disappointment and frustration which my hon. Friend the Member for Shipley (Mr. Hirst) has just voiced with the reply. The hon. and learned Gentleman gave virtually no sign of having paid any attention to any of the arguments advanced from this side of the House about the difficulties this situation is creating for business, about the hampering restrictions it represents on the expansion of new businesses.
I will forbear for want of time from quoting it at length but I advise the hon. and learned Gentleman to read an article in The Director called
Killing Off Tomorrow's Big Businesses.
It is by Mr. James Pilditch, of Allied Industrial Designers, Ltd., who writes that, if he gets £50,000 extra export business, his accountant works out that only a little over £1,000 of that reaches the shareholders after all the tax wanted under the new rules.
The hon. and learned Gentleman must realise that this and other rules on close companies are a grave disincentive to enterprise and effort. By his answers tonight, he has shown a marked lack of sympathy which my right hon. and hon. Friends would be justified in expressing dissatisfaction with by voting in the Division Lobby.

Question put, That the Clause be read a Second time: —

The House divided: Ayes 136, Noes 199.

Division No. 260.]
AYES
[9.44 p.m.


Alison, Michael (Barkston Ash)
Brewis, John
Campbell, Gordon (Moray &amp; Nairn)


Baker, Kenneth (Acton)
Brinton, Sir Tatton
Carlisle, Mark


Balniel, Lord
Bromley-Davenport,Lt.-Col.SirWalter
Chichester-Clark, K.


Biffen, John
Buchanan-smith,A1ick(Angus,N&amp;M)
Clegg, Walter


Birch, Rt. Hn. Nigel
Bullus, Sir Eric
Cooke, Robert


Black, Sir Cyril
Burden, F. A.
Cooper-Key, Sir Neill


Boardman, Tom (Leicester, S.W.)
Campbell, B. (Oldham, W.)
Corfield, F. V.




Crowder, F. P.
Kimball, Marcus
Rawlinson, Rt. Hn. Sir Peter


Dance, James
King, Evelyn (Dorset, S.)
Rhys Williams, Sir Brandon


Davidson, James (Aberdeenshire, W.)
Kirk, Peter
Ridley, Hn. Nicholas


d'Avigdor-Goldsmid, Sir Henry
Knight, Mrs. Jill
Ridsdale, Julian


Dean, Paul (Somerset, N.)
Lambton, Viscount
Rodgers, Sir John (Sevenoaks)


Deedes, Rt. Hn. W. F. (Ashford)
Langford-Holt, Sir John
Rossi, Hugh (Hornsey)


Eden, Sir John
Longden, Gilbert
Scott-Hopkins, James


Elliot, Capt. Walter (Carshalton)
Lubbock, Eric
Sharpies, Richard


Errington, Sir Eric
Mackenzie, Alasdalr (Ross&amp;Crom'ty)
Shaw, Michael (Sc'b'gh &amp; Whitby)


Eyre, Reginald
Maclean, Sir Fitzroy
Silvester, Frederick


Farr, John
Macleod, Rt. Hn. lain
Sinclair, Sir George


Fortescue, Tim
McMaster, Stanley
Smith, Dudley (W'wick &amp; L'mington)


Fraser, Rt. Hn. Hugh (St'fford &amp; Stone)
Maddan, Martin
Smith, John (London &amp; W'minster)


Galbraith Hn. T. G.
Maginnis, John E.
Stainton, Keith


Glover, Sir Douglas
Marten, Neil
Steel, David (Roxburgh)


Goodhart, Philip
Maude, Angus
Stoddart-Scott, Col. Sir M. (Ripon)


Goodhew, Victor
Mawby, Ray
Summers, Sir Spencer


Cower, Raymond
Maxwell-Hyslop, R. J.
Taylor, Sir Charles (Eastbourne)


Grant, Anthony
Maydon, Lt.-Cmdr. S. L. C.
Temple, John M.


Grieve, Percy
Mills, Peter (Torrington)
Thatcher, Mrs. Margaret


Griffiths, Eldon (Bury St. Edmunds)
More, Jasper
Turton, Rt. Hn. R. H.


Grimond, Rt. Hn. J.
Morgan, Geraint (Denbigh)
van Straubenzee, W R.


Gurden, Harold
Munro-Lucae-Tooth, Sir Hugh
Waddington, D.


Hall, John (Wycombe)
Murton, Oscar
Wainwright, Richard (Colne Valley)


Hall-Davis, A. G. F.
Nabarro, Sir Gerald
Walker-Smith, Rt. Hn. Sir Derek


Harrison, Brian (Maldon)
Nicholls, Sir Harmar
Wall, Patrick


Harrison, Col. Sir Harwood (Eye)
Noble, Rt. Hn. Michael
Walters, Dennis


Harvey, Sir Arthur Vere
Onslow, Cranley
Ward, Dame Irene


Harvie Anderson, Miss
Osborne, Sir Cyril (Louth)
Weatherill, Bernard


Hawkins, Paul
Page, Graham (Crosby)
Whitelaw, Rt. Hn. William


Heald, Rt. Hn. Sir Lionel
Pardoe, John
Williams, Donald (Dudley)


Heseltine, Michael
Pearson, Sir Frank (Clitheroe)
Wilson, Geoffrey (Truro)


Higgins, Terence L.
Peel, John
Winstanley, Dr. M. P.


Hirst, Geoffrey
Percival, Ian
Wolrige-Gordon, Patrick


Holland, Philip
Pike, Miss Mervyn
Younger, Hn. George


Hooson, Ernlyn
Pink, R. Bonner



Hornby, Richard
Pounder, Rafton
TELLERS FOR THE AYES:


Hunt, John
Powell, Rt. Hn. J. Enoch
Mr. Anthony Royle and


Jenkin, Patrick (Woodford)
Pym, Francis
Mr. R. W. Elliott.


Kaberry, Sir Donald
Ramsden, Rt. Hn. James





NOES


Abse, Leo
Datyell, Tarn
Herbison, Rt. Hn. Margaret


Albu, Austin
Davies, Harold (Leek)
Hooley, Frank


Allaun, Frank (Salford, E.)
Davies, Ifor (Cower)
Horner, John


Alldritt, Walter
Dempsey, James
Howell, Denis (Small Heath)


Anderson, Donald
Diamond, Rt. Hn. John
Howie, W.


Archer, Peter
Dickens, James
Hoy, James


Armstrong, Ernest
Doig, Peter
Huckfield, Leslie


Atkins, Ronald (Preston, N.)
Driberg, Tom
Hughes, Roy (Newport)


Atkinson, Norman (Tottenham)
Dunn, James A.
Hunter, Adam


Bacon, Rt. Hn. Alice
Dunwoody, Mrs. Gwyneth (Exeter)
Hynd, John


Barnett, Joel
Dunwoody, Dr. John (F'th &amp; C'b'e)
Jackson, Colin (B'h'se &amp; Spenb'gh)


Baxter, William
Edelman, Maurice
Jackson, Peter M. (High Peak)


Beaney, Alan
Edwards, William (Merioneth)
Jeger,Mrs.Lena(H'b'n&amp;St.P'cras,S.)


Bence, Cyril
Ellis, John
Johnson, Carol (Lewisham, S.)


Bidwell, Sydney
English, Michael
Johnson, James (K'ston-on-Hull W.)


Bishop, E. S.
Evans, Albert (Islington, S.W.)
Jones, Dan (Burnley)


Blackburn, F.
Evans, loan L. (Birm'h'm, Yardley)
Jones, J. Idwal (Wrexham)


Boardman, H. (Leigh)
Faulds, Andrew
Kerr, Mrs. Anne (R'ter &amp; Chatham)


Booth, Albert
Fernyhough, E.
Kerr, Dr. David (W'worth, Central)


Boston, Terence
Fletcher, Ted (Darlington)
Kerr, Russell (Feltham)


Braddock, Mrs. E. M.
Foley, Maurice
Lawson, George


Bray, Dr. Jeremy
Foot, Michael (Ebbw Vale)
Leadbltter, Ted


Brooks, Edwin
Forrester, John
Ledger, Ron.


Brown, Hugh D. (G'gow, Provan)
Fowler, Gerry
Lee, Rt. Hn. Frederick (Newton)


Brown, Bob (N'c'tle-upon-Tyne, W.)
Freeton, Reginald
Lee, John (Reading)


Brown, R. W. (Shoredltch &amp; F'bury)
Galpern, Sir Myer
Lestor, Miss Joan


Buchanan, Richard (G'gow, Sp'burn)
Gardner, Tony
Lever, Harold (Cheetham)


Butler, Herbert (Hackney, C.)
Gray, Dr. Hugh (Yarmouth)
Lewis, Arthur (W. Ham, N.)


Callaghan, Rt. Hn. James
Gregory, Arnold
Lewis, Ron (Carlisle)


Cant, R. B.
Grey, Charles (Durham)
Lomas, Kenneth


Carmichael, Neil
Griffiths, Eddie (Brightside)
Loughlin, Charles


Carter-Jones, Lewis
Griffiths, Will (Exchange)
Luard, Evan


Chapman, Donald
Hamilton, James (Bothwell)
Lyons, Edward (Bradford, E.)


Coe, Denis
Hamling, William
McBride, Neil


Coleman, Donald
Hannan, William
McCann, John


Concannon, J. D.
Harper, Joseph
MacColl, James


Corbet, Mrs. Freda
Harrison, Walter (Wakefield)
MacDermot, Niall


Crawshaw, Richard
Haseldine, Norman
McGuire, Michael


Cronin, John
Hazell, Bert
Mackintosh, John P.


Grossman, Rt. Hn. Richard
Heifer, Eric S.
Maclennan, Robert


Cullen, Mrs. Alice
Henig, Stanley
McMillan, Tom (Glasgow, C.)







Mahon, Peter (Preston, S.)
Paget, R. T.
Spriggs, Leslie


Mahon, Simon (Bootle)
Palmer, Arthur
Steele, Thomas (Dunbartonshire, W.)


Mallalieu,J.P.W.(Huddersfield,E.)
Parkyn, Brian (Bedford)
Symonds, J. B.


Manuel, Archie
Pearson, Arthur (Pontypridd)
Taverne, Dick


Marks, Kenneth
Peart, Rt. Hn. Fred
Thornton, Ernest


Marquand, David
Pentland, Norman
Tinn, James


Mason, Rt. Hn. Roy
Price, Christopher (Perry Barr)
Tuck, Raphael


Maxwell, Robert
Price, Thomas (Westhoughton)
Urwin, T. W.


Mellish, Rt. Hn. Robert
Price, William (Rugby)
Walker, Harold (Doncaster)


Mendelson, J. J.
Rankin, John
Watkins, David (Consett)


Millan, Bruce
Reynolds, Rt. Hn. G. W.
Watkins, Tudor (Brecon &amp; Radnor)


Miller, Dr. M. S.
Roberts, Albert (Normanton)
Weitzman, David


Milne, Edward (Blyth)
Robertson, John (Paisley)
Wellbeloved, James


Mitchell, R. C. (S'th'pton, Test)
Robinson,Rt.Hn.Kenneth(St.P'c'as)
White, Mrs. Eirene


Molloy, William
Robinson, W. O. J. (Walth'stow, E.)
Wilkins, W. A.


Morgan, Elystan (Cardiganshire)
Rose, Paul
Willey, Rt. Hn. Frederick


Morris, Alfred (Wythenshawe)
Rowlands, E. (Cardiff, N.)
Williams, Alan (Swansea, W.)


Morris, Charles R. (Openshaw)
Ryan, John
Williams, Alan Lee (Hornchurch)


Moyle, Roland
Sheldon, Robert
Willis, Rt. Hn. George


Murray, Albert
Shore, Rt. Hn. Peter (Stepney)
Wilson, William (Coventry. S.)


Neal, Harold
Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Winnick, David


Oakes, Gordon
Short, Mrs. Renée (W'hampton,N.E.)
Yates, Victor


O'Malley, Brian
Silkin, Rt. Hn. John (Deptford)



Oram, Albert E.
Silkin, Hn. S. C. (Dulwich)
TELLERS FOR THE NOES:


Orme, Stanley
Silverman, Julius (Aston)
Mr. Alan Fitch and


Oswald, Thomas
Slater, Joseph
Mr. Eric G. Varley.


Page, Derek (King's Lynn)
Small, William

New Clause 30

GROUP RELIEF

After sub-paragraph (c) of subsection (2) of section 20 of the Finance Act, 1967, there shall be inserted the following sub-paragraphs:
'(d) where the surrendering company is a member of a consortium and the claimant company is a trading company which is owned by the consortium and which is not a subsidiary of any company, or
(e) where the surrendering company is a member of a consortium and the claimant company is a trading company—

(i) which is a 90 per cent. subsidiary of a holding company which is owned by a consortium, and
(ii) which is not a subsidiary of a company other than the holding company, or


(f) where the surrendering company is a member of a consortium and the claimant company is a holding company which is owned by the consortium and which is not a subsidiary of any company'.—[Mr. Patrick Jenkin.]

Brought up, and read the First time.

Mr. Patrick Jenkin: I beg to move, That the Clause be read a Seeond time.

Mr. Speaker: I have suggested that with this new Clause we take new Clause 66, "Definitions for the purpose of group relief".

Mr. Jenkin: Mr. Speaker, I begin by expressing my gratitude and that of my right hon. and hon. Friends that you have accepted the suggestion that these proposed new Clauses might conveniently be discussed together.
We are dealing with the complicated grouping provisions which were embodied in last year's Finance Act. This is an aspect of Corporation Tax law where I think the Chief Secretary will agree we have made progress in the last three years, but little by little. In the 1965 Act there was no provision for grouping for Corporation Tax. I moved an Amendment, but it was rejected as being impossible. In 1966, I moved a similar Amendment, and on that occasion the Chief Secretary, though unable to accept it, cast a benign eye on it.
In 1967, the Bill contained a Clause, which is now Section 20 of the 1967 Act, which went part of the way to providing a system of grouping for Corporation Tax. In Committee I moved an Amendment to say that this should apply to consortia of companies as well as to parents and subsidiaries. Again the Chief Secretary cast a benign eye on the proposal and on Report a consortia Amendment duly appeared, but it went only one way. It applied only where a trading company which was owned by five or fewer companies was the loser, and enabled it to share its losses with its parents.
I moved an Amendment to suggest that the provision should operate both ways, that where the consortium company was making a profit, that should be allowed to be shared with any losses made by any of the parent companies.


Replying to the debate the Chief Secretary was again benign. He said:
I hope that the hon. Gentleman will agree with me that we have gone a long way. I am not saving that we close our minds to going any further. At the moment, we have gone as far as we can. I wanted to listen to his arguments, and I have heard them, some matters require more careful consideration, and I do not rule out the possibility of coming some way to meet him in due course, which inevitably will be in a year's time."—[OFFICIAL REPORT, 27th June, 1967; Vol. 749, c. 352.]
Here we are, and as a result I am not entirely without hope that the Chief Secretary's benign eye might lead him to accept the Clause.
This is a case where the joint offspring of a consortium is profitable, but its parents are making losses. I think one can add to the argument I adduced last year, and which I shall not repeat, that if this extension of the grouping relief is not allowed, one will see a growth in the pattern which is already operating of companies engaging in partnership operations because by doing so we are able to set off their losses against their profits. But this is bound to be an artificial business arrangement, and one which I should have thought was undesirable. If, however, the Clause is accepted, the case is met, and I hope, therefore, that the Chief Secretary will be able to indicate his acceptance of it this evening.
New Clause 66 is also concerned with this grouping provision for Corporation Tax. It aims to widen the relief slightly in three separate ways. First, as the 1957 Act is drawn a consortium qualifies for relief only if it is 100 per cent. owned by the parent companies. The Chief Secretary will remember that where one is dealing with the grouping of dividends the test is 75 per cent. New Clause 66 suggests that 75 per cent. is fair and will not lead to any undesirable tax avoidance. If some minor loophole is left, I suggest that that will be a small price to pay for the added flexibility which a 75 per cent. test will bring.
10.0 p.m.
The second extension would apply to group relief in the case of a consortium in which the parent company did not necessarily hold shares in the joint offspring but in which some other company in the group had made a loss which was set

off against the profits of the joint offspring. This is a small extension, and in the case of a group of companies it seems quite reasonable, because if the pattern is intended to operate both for consortia of companies and subsidiaries and a subsidiary of a parent company makes a loss and a consortium company—of which the parent company is a member— makes a profit, it is not unreasonable that the loss and the profit should be set off against each other.
The third change is a small one, which may at first sight appear to be dangerous but which I believe is not so. That is the case in which a consortium of parent companies owns shares in a holding company which itself owns shares in subsidiaries. If those subsidiaries are all United Kingdom companies, the case is covered by existing law, but if any companies are resident overseas the relief does not apply under the provisions of Section 20(7) of the 1967 Act which defines companies to which the Clause refers as United Kingdom-resident companies.
In general this restriction is right, but it can operate much too restrictively in the circumstances that I have described, in which a holding company is interposed between the consortium parent companies and the subsidiaries. It is quite appropriate that the relief should operate even if some subsidiaries are resident overseas.
These are all useful extensions of Section 20. They all reflect the basic philosophy which that Section intended to embody, namely, that we tax a group of companies broadly on the balance of its profits and losses and do not tax the profits and merely leave the group to carry its losses forward to another year. I have moved the new Clause in a spirit which I hope the Chief Secretary will find sympathetic and I hope that he, in turn, will be sympathetic to the amendments which the new Clauses embody.

Mr. Diamond: The hon. Member was correct in saying that we have made considerable progress in this matter year by year and little by little. The form of the progress is as he has indicated. He puts forward a proposal; I think about it; I make some sympathetic noises, and I am later—on Report, or during the following year—in a position to bring forward a proposal to meet the point. This process serves two purposes. First, it meets the point made and, secondly, it


provides a suitable platform upon which a second request can be built.
I realise this and I am grateful for what the hon. Member said, because he painted a picture of me as I would want to be seen, namely, as being sympathetic to this general approach and as trying to move with the times—and, to the extent that consortia are adopted as a suitable method of organising business, to provide that nothing in the Income Tax Acts prevents their proper businesslike spread.
The hon. Member has now proceeded to erect on the considerable structure of Amendments which have been made hitherto a number of proposals, which we are now discussing. I will deal with them together rather than go into detail on each one as the broad case is the same on each. None of the proposals, as far as I am aware and as far as the Inland Revenue is aware, presents actual cases of difficulty at this time. The first proposal was one which the hon. Gentleman referred to on an earlier occasion last year as one of artificial hypothesis. It is of considerable artificiality. It is the case where the parents get together and set up a consortium; the consortium makes profits out of business ideas contributed by the parents, and the parents make losses.
This is theoretically possible, but highly unlikely. I am dwelling on the point of possibility because I and my officials have said that we are not aware of any individual cases. When discussions have taken place with, for example, the C.B.I., we have invited those discussing these matters with us to give examples and to produce real cases, but this has not been done. I am strengthened in my view that, although this is theoretically possible, there are no individual cases afoot which call for consideration.
It would be wholly illogical for me to use that argument unless I were to say that, if there were such cases, we would want to look at them with a degree of sympathy. One cannot rely on the argument that it does not arise unless one deals with the position of what happens if it does arise. If it does arise, I would be happy to look at the Clause Amendment with sympathy, and the same remarks apply to the other Clauses which we are discussing.
The hon. Gentleman would not suggest that the only method of avoiding difficulty is the method of the relief which he proposes. If, for example, a holding company is embarrassed by containing both resident and non-resident companies, there is nothing easier than to split it up into two holding companies so that one would be of the kind to qualify for the relief. One does not want to put this trouble on to people unnecessarily, but it is an easy way of organising the matter so that the difficulty does not arise.
My reply to the three points contained in the second Clause and the main point made in the first Clause is, first, that we are not aware of actual cases. Secondly, these proposals added together amount to a considerable rewriting of the provisions which we have so far agreed for relief where consortia are involved. Thirdly, the arrangements that we have provided have not had a long run. We have altered them every year and the latest ones have had hardly any satisfactory time to run. Fourthly, and importantly, if during the course of the coming year we are made aware of actual cases of difficulty, I will continue to look at the matter with considerable sympathy and, if necessary, bring forward proposals to the House next year.
The difficulty has not, in practice, arisen. I do not think that we ought to anticipate it. We ought to see how the present proposals are running. I am grateful to the hon. Gentleman for what he has said, and I hope he feels that 1 have responded in the spirit in which he put forward his request.

Mr. Patrick Jenkin: I do not wish unduly to prolong the debate. I would only assure the Chief Secretary that I find it difficult to believe that busy businessmen and their advisers would have taken the trouble last year and this year to seek parliamentary support for Amendments which clearly they regard as important to the existing structure of the Corporation Tax if they were wholly without foundation. It may be that, for example, the C.B.I. has not produced the concrete cases to the Treasury which have moved it to seek the Parliamentary support from this side of the House which it has.
However, I have no doubt that those responsible for these matters will read what the Chief Secretary has said and


will see that he and his officials are appraised of any cases where the existing law is operating unduly restrictively and where my Amendments might ameliorate the position. Then next year, I hope that we shall take a further step, when one would hope that the Chancellor would produce in the Finance Bill the proposals that I have moved this year so that we could move on to further concessions, taking us well into the next Government.
Having said that, I beg to ask leave to withdrawn the Motion.

Motion and Clause, by leave, with drawn.

New Clause

TAX ON DISTRIBUTION

In paragraph 4 of Schedule 12 to the Finance Act 1965 the words from 'Act' to the end of the paragraph shall be repealed.—[Mr. Michael Alison.]

Brought up, and read the First time.

Mr. Michael Alison: I beg to move, That the Clause be read a Second time.
The Clause is designed to relieve paperwork by corporate bodies who already have a great deal to undertake. I may be mistaken in the precise terms which have been adopted, but I hope that it introduces a simple remedy, the effect of which will be to straighten out some of the deviousness of the Finance Act, 1965, and introduce a shorter distance between the two points of the aggregate liability of a corporation to pay tax and its aggregate discharge of that obligation.
To fill in the background a little, perhaps I might remind the House of an existing complication which arises from the fact that there are two sorts of outgoings for which a corporation has to account to the Inland Revenue for Income Tax. The first is in respect of dividends or other distributions made to its shareholders in the technical sense of the word "distribution" and as we understand it in the terms of the Finance Act, 1965. The second is what are generally referred to as "other payments"—interest payments, and so on—not payable to shareholders necessarily. In respect of both sorts of outgoings, the corporation has to account to the Inland Revenue for Income Tax.
The plot thickens slightly when one recalls that there are two categories of income that a corporation may receive which correspond to those two species of outgoings. If those two categories of income accrue to it, they will do so under deduction of Income Tax. The two categories of income are distributions or dividends received from another company resident in the United Kingdom— that is, franked investment income—and other annual payments like interest payments payable to the corporation. Both those categories of income will be received under deduction of Income Tax, and tax will be borne by the receiving company.
10.15 p.m.
These two outgoings and two incomes are precisely the same thing, depending on whether one is paying or receiving. I am sure that the Chief Secretary, with his desire always to reach the crucial point as quickly as possible and his experience as an accountant, will agree that the common sense procedure, when a company accounts for Income Tax when it is the maker of certain payments, dividends or interest, and when it has an entitlement to repayment, is that it should marry the obligations and entitlements and strike a net obligation. This is a straightforward short cut when conflicting claims and obligations arise.
This is where we plunge into the murky waters of Treasury deviousness in the machinery for discharging those obligations and entitlements and striking the net figure. The 1965 Finance Act provides for precisely this sort of rational off-setting in respect of the monthly accounting period, as distinct from the year-end rounding-up of the off-setting arrangements made during the monthly accounting periods. The feature which the Act introduced into the monthly accounting periods was that all these lines could be crossed; that is to say, tax which had been borne on franked investment income and to which there was an entitlement to repayment, or tax which had been borne by other payments received by the company, could be used indiscriminately in the monthly settlements to offset obligations in respect of distributions or other payments made.
The two categories did not have to be married into precisely the same family. They could all be jumbled together. All


that had to be resolved at the end of the period was a residual figure of all these claims and obligations. Yet, at the end of the fiscal year, instead of just being allowed to settle with the residual net figure emerging from these conflicting transactions, the Act obliged corporations to pull up all these lines and unscramble all these settlements, and made it clear that entitlement to repayment of tax in respect of franked investment income could be used only to offset obligations to account for tax for dividends and distributions, and for nothing else, including interest payments. Correspondingly, entitlement to repayment of tax in respect of other payments received by a corporation, not being franked investment income, could be applied only to offset tax obligations in respect of these other payments, interest payments, for example, forming an outgoing.
Thus, a corporation which has conceivably gone through the year striking at the end of each month a sensible net balance for these four possible permutations of entitlement or obligation must tear up the whole complicated system, look up all the old documents and revise its whole payments procedure throughout the 12-monthly accounting period to resolve the different categories into their original family likenesses once again.
It seems to many corporations an irrelevant waste of manpower, paper, energy and patience to have to go to this trouble. We are, therefore, merely asking the Government to persist in the logic which has been introduced into the settlement of the monthly account, namely, that all the conflicting claims and counterclaims to and from the Revenue should be settled at the end of the fiscal year by a simple net residual figure, as it is for the monthly accounting period, without the necessity being laid on corporations to resolve these conflicting claims into their original family categories.
I concede that the words of the Clause may not precisely achieve the objective we have in mind. I hope, however, that in what is a technical and complicated sector of company finance the Financial Secretary will see the reasonable logic of our proposal, even if he must dispute the form in which we seek to achieve it.

Mr. Harold Lever: Nobody who took part in the debates on the 1965 Act, in which we instituted our system of Corporation Tax, will attribute to me unqualified enthusiasm for every particularity of the arrangements then made for the taxing of corporations. Even my right hon. Friend the Chief Secretary, who was present during those debates, will bear witness to the truth of that. It so happens, however, that the hon. Member for Barkston Ash (Mr. Alison) has picked on a particular system for dealing with company investment income, franked and unfranked, which I think he will, on reflection, regard as not unreasonable and not unfair.
The system of Corporation Tax involves a great number of payments in and out of the company and the Revenue to secure the tax and obligations of the company concerned as speedily as possible and as a monthly settlement, for it follows from the Corporation Tax system —I will not go into it in unnecessarily great detail—that it often involves a company holding the Revenue's money.
This means that if, for example, a company has a fiscal year ending in May and pays its dividend in May, so deducting tax on behalf of the Inland Revenue under Schedule F, it is then in possession of the Revenue's money. The tax deducted belongs to the Revenue, which has a pardonable anxiety to have it in its pocket at the earliest date. For this reason we established the system of monthly settlements, and that does not seem unreasonable.
It follows, however, that if the Revenue says, "We wish to have our money from the company in these circumstances at monthly intervals and as soon as possible," the company should be entitled to set off as quickly as possible against its obligations any obligations which the Revenue may have. The hon. Member for Barkston Ash will concede that we must have monthly settlements. The difficulty is that some of the tax deductions that are made in the payments through the company, notably dividends, are usable only in certain circumstances. One such circumstance which normally applies to a company is when it receives franked investment income; it can use the tax deducted only to offset it against the dividends it pays out. There are


other circumstances, but normally the only real use that a company can make of franked investment income is to relieve itself of its obligations in this respect and so to set one off against the other.
In the monthly computations, the Revenue takes the most favourable view from the taxpayer's point of view. It allows a taxpayer company to set off against those franked investment dividend deductions anything of any kind for which the company would be accountable including, for example, tax that it had itself deducted from a debenture payment for which it would be accountable to the Revenue and which is not offsettable under the law against the franked investment income it has received. It is offset in the monthly settlement to the advantage of the taxpayer. It follows that at the end of the year, however tedious it is to ascertain what exactly is the tax due, we have to go through the computations and segregate the different types of income received by a company into their original form.
To put it shortly, in the monthly settlements, to make it simpler, the Revenue concedes that any tax deduction the company has suffered can be set off against any tax liability which the company has to the Revenue. This is to the advantage of the company, because in the example I have given, in the monthly settlement, instead of the company paying over at once the tax that is deducted from a debenture coupon, which it would have to do if we enforced the law month by month, the company is able to hold the money till the year ends.
It comes down to this. Since we want monthly settlements, the fairest thing is to take the monthly settlement in the. way that is most favourable to the taxpayer, but when we come to the final settlement, alas, the Revenue wants its correct amount of tax. This involves disentangling the payments, so that the temporary advantageous use by the company cannot be finally and ultimately acceptable. Without my going into too many minute aspects of Corporation Tax law, I hope that the hon. Gentleman will be satisfied that the not uncritical eye of a Treasury Minister having looked at it, he has come to the conclusion that this

is to the advantage of the taxpayer, and that there is no real way, short of losing that advantage to a taxpayer and making him perform monthly calculations of accuracy, as we use for the final settlement. In principle, it is easier to do 11 simple statements which need no time at all, and one final, rather more complicated system, than to have 12 monthly settlements, each minutely correct in accordance with the somewhat complicated provisions of the 1965 Act. For those reasons, I hope that the hon. Gentleman will feel minded to withdraw his Clause.

Mr. Alison: The Financial Secretary, with his customary acumen and charm, has put the best possible light on a poor case. I appreciate his sense of obligation and his desire to help the taxpayer. He stressed that it was in the interests of the taxpayer that these monthly payments were tilted in the taxpayers' favour, but he left out one possible permutation of the alternatives which was at once apparent to hon. and right hon. Members on this side—that the principle of being of assistance to the taxpayer in 11 months out of 12 should be extended to the twelfth month.
This principle of helping the taxpayer in respect of his obligations and preeminently in respect of the paper work with which he is encumbered when he should be doing things more directly connected with the welfare of the company and the economy as a whole, should be the overriding concern of the Treasury.
Although, in the light of the hon. Gentleman's attempt to put the best possible construction on these provisions, I would not advise my hon. and right hon. Friends to press this issue to a Division, we would, nevertheless, like to put it on record that we think that the principle of fairness to the taxpayer in regard to the monthly payments should be extended to the full year, and that that principle should not be entirely negatived and taken away at the end of the normal accounting period. For that reason, we record our disappointment— a disappointment that will be echoed elsewhere.

Question put and negatived.

New Clause 33

CHARITABLE SETTLEMENT

The proviso to paragraph 21(3) of the Seventh Schedule to the Finance Act 1965 shall not apply to a charitable settlement nor to any settlement which, apart from this provision, otherwise satisfies the conditions prescribed by the proviso to section 25(7) of this Act.—[Mr. John Hall.]

Brought up and read the First time.

10.30 p.m.

Mr. John Hall: I beg to move, That the Clause be read a Second time.
This Clause is designed to remove an anomaly which, obviously by an oversight, occurred in the original drafting of Schedule 7 to the 1965 Act. Quite inadvertently, gifts to charities have been penalised by the operation of this Schedule. I shall read a definition of the purposes of the Schedule which admirably sets out the provisions. The definition is contained in a letter addressed by the Financial Secretary—I am sorry that he is not present now—to my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) in an exchange of correspondence on this point.
The Financial Secretary defined the provisions of Schedule 7 of the Finance Act, 1965, as,
designed to prevent the creation of artificial losses by transactions entered into between associated parties. Their effect is, broadly, that transactions between 'connected' persons are deemed to take place at market value, and that a loss arising on a disposal from one connected person to another can only be set off against a gain arising on a transaction between the same two persons. The definition of 'connected persons' in paragraph 21 of Schedule 7 covers husbands and wives and close relatives; it also provides that the trustee of a settlement is 'connected' with any individual who, in relation to the settlement, is a settlor.
That seems to be an excellent definition with which no one on the Treasury Bench would quarrel. I am sure that it was not intended when this was provided that it should catch gifts to established charities. In the same letter the Financial Secretary obviously thought that it would not catch those charities because he went on to say:
These provisions have no relevance to the ordinary case of a gift to an established charity, with the setting-up of which the donor was not concerned.

Unfortunately for the charities and the donors of assets to such charities, he was not correct. Where an individual makes a gift of shares in a publicly quoted company to a charity, to be used as to capital and income for particular purposes and the shares in question show a loss as against their value of 5th April, 1965, the loss so sustained is not available for relief unless the donor makes another gift to the same charity and for the same purposes on which a profit is shown.
The Financial Secretary agreed that that definition as established under Schedule 7 was, in fact, correct, but he went on to say, during interchanges, that it had taken the Treasury a little time to interpret the provisions of Schedule 7. When it takes time for the Treasury itself to interpret provisions, what chance has the ordinary layman of finding his way through this extraordinary morass of fiscal legislation?
The Financial Secretary pointed out that, in practice, this had never cropped up, but he agreed that it could do and said that he would have a look at it. It has cropped up, and I hope that the Minister will have another look at this problem.
An actual case did take place. A man who wished to make a donation of assets to an established charity did so by making over to the charity a number of shares which at the time showed a capital loss in his hands. As he passed the shares on to the charity, the loss was not available for relief from Capital Gains Tax unless at some later stage he made another gift to the same charity for the same purpose on which there was a profit on which the earlier loss could be offset.
Clearly, if he realised that what he might have done was to make a gift of half the value of the assets and keep the other half hoping that in due course the market value would change, he could have offset the second loss against the second profit. I am sure that it was never intended to manipulate gifts to charities in that way to offset losses.
I am certain that it is necessary only to draw this extraordinary anomaly to the Minister's attention for him to do what the Financial Secretary has already promised to do—to have an active and


positive look at this, to accept the Clause and remove the anomaly from the Statute Book.

Mr. Kenneth Baker: This is a very complicated point concerning minute details of the Capital Gains Tax. The point has been made clearly by my hon. Friend the Member for Wycombe (Mr. John Hall) that, because of this anomaly in Schedule 7, a possible donor may not be able to claim relief from Capital Gains Tax on the gift of shares to a charity. There is, therefore, an inhibition on the donor. Anybody who has had anything to do with charities knows that, once a donor has been brought to the point of boiling, as it were, one does not want to lose him by his having any slight worry that he may have to balance, for purely tax reasons, that donation of shares which he wants to make to a charity with another donation later of a different set of shares, possibly to a different charity. This is the law as it stands.
The Clause attempts to remove this obstacle to the flow of compassion. I hope that the Treasury will be receptive to it. If the Treasury is in a receptive mood, we would like it to consider exempting all gifts to charity from the Capital Gains Tax. It is an anomaly in the Capital Gains Tax as it stands that all gifts to charity are, because they are a disposal and, therefore, a liability to Capital Gains Tax arises, liable to Capital Gains Tax. Yet Capital Gains Tax need not be paid on money given to a State charity or to the National Trust.
I hope that the Treasury will bear this in mind. The Capital Gains Tax is complicated and obscure. Some of us are trying to make it simpler. This is a small anomaly. It is a point which affects some charities very much indeed. I hope that the Treasury will look upon it sympathetically.

Mr. Taverne: As to the purpose of the tax—the case which the hon. Member for Wycombe (Mr. John Hall) raised—I cannot improve on the letter which was written by my hon. Friend the Financial Secretary setting out for what reason the tax was introduced. An anomaly was drawn attention to in the correspondence which ensued and the Financial Secretary said that this was a matter at which he would look. It is important to point out that, although there has been one case

in which this has arisen, it is likely to be extremely rare. Gifts of assets rather than cash are very unusual. [HON. MEMBERS: "NO."] AS to hardship, the person can sell the assets and give the cash proceeds. If it is land, it is very unlikely that there would be any loss suffered on land which the donor would then be able to offset against the gain.
Nevertheless, there is a case for looking at this. It is, however, difficult to draw the line, because in the case of gifts to private charitable trusts where the settlor is closely connected with the purposes for which the trust is set up and where, indeed, he has control over this, one is dealing with a case where there is considerable scope for tax avoidance. The private charitable trust could not easily be distinguished from the public established charity. This is something which my hon. Friend the Financial Secretary said that he would look at, but as it was such a rare case, and as one could hardly point to hardship being suffered, because there was the alternative of selling the shares, it was not something which was given great priority and it was not something in respect of which we were in a position to table an Amendment on Report.
The difficulty about the Clause is that it means that the deserving case under the public established charity is mixed up with the private charity, where there is more room for tax avoidance. It seems desirable to distinguish these two. To answer the point put forward by the hon. Member for Acton (Mr. Kenneth Baker), there are no general Estate Duty exemptions for gifts to charities. It is reasonable that one should keep the position on Estate Duty in line with the position on capital gains.
On another occasion a Financial Secretary said that it was of considerable importance that one should adhere to precedent, and not do something leading to wide pressure for the extension of the concession to other areas. One has the same position at the moment for exemption of gifts for capital gains purposes, as one has for Estate Duty purposes. If someone makes a gift of shares of a public company, it is likely that he will know what the company's liability will be, and he can sell enough of the shares to provide for this or can come to some arrangement with the charity that he


should be repaid the amounts which he has foregone, and which he would have to pay as tax.
If they are shares in a private company, a different position obtains, but it is unlikely that charities would accept shares in such companies. If one looks at gifts of land or chattels, one finds that there is a parallel with Estate Duty. It also applies if there are gifts to the National Trust under Section 32 of the 1965 Act, and in certain circumstances in the case of securities given to the National Trust. The position under Estate Duty and capital gains has been kept the same and it seems eminently sensible that this should be maintained.

Mr. Kenneth Baker: The comparison between Estate Duty and capital gains is faulty. The hon. and learned Gentleman has selected for his argument, cases where they tally. There is the important instance where one can dispose of £1,000 worth of chattels under the capital gains legislation and not incur tax liability. If we use this example there is no comparison between capital gains and Estate Duty. One cannot give away £1,000 worth of chattels to a host of relations or charities and escape liability to Estate Duty. This is an important point, where they do not march side by side. It is not fair for the Minister to quote an example to support his argument but omit those which do not do so.

Mr. Taverne: In almost every case the examples given are exactly side by side. If one takes the position under Sections 31 and 32 of the Act the position is the same. If one looks at the question of gifts of land or securities, in all these cases it is the same. There is no general exemption for Estate Duty purposes. The Clause would provide a general exemption for capital gains.

10.45 p.m.

Mr. Patrick Jenkin: I shall make a brief intervention in the debate on this new Clause since it appeared from his speech that my hon. Friend's point arose out of correspondence I had with the Financial Secretary, which, in turn, arose out of correspondence with a constituent of mine, Mr. Mace.
The Minister of State's reply was strange. He must have heard the reaction of my hon. Friends when he said that gifts of assets to charity were most unlikely. I can assure him that many people owning shares in a private company may feel it right to give shares to charity rather than sell unmarketable securities and give the money. It is wrong to say that it is unlikely. This might happen, and for all I know, has happened.
The hon. and learned Gentleman's second point was equally strange. He sought to distinguish between two sorts of charity, the public charity and the private. I believe that I am indebted to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for reminding me of the words of Gertrude Stein, "A rose is a rose is a rose", and I might say to the Minister, "A charity is a charity is a charity".
The law knows no distinction between the so-called public charity and the so-called private charity. The fact that the Minister and his advisers see all sorts of tax avoidance acts in something which he calls a private charity should not be allowed to stand in the way of remedying an admitted anomaly.
Perhaps the most surprising thing the Minister of State said in reply to the case made by my hon. Friend the Member for Wycombe (Mr. John Hall) was that this was a matter which had not been given great priority. I gained the impression, and perhaps I do him an injustice, that it had not been given any priority at all. May I remind the Minister of what he wrote in March:
In practice, this point has never cropped up but I agree it could and I am having a further look into the question.
Was there a further look after that letter, or was there no further look until the Amendment was put down by my hon. Friend for Report? The Minister has given us a most disappointing answer and although my hon. Friend the Member for Wycombe will wish to comment on it I feel that it would be right for me to urge him to invite his hon. Friends to support him in the Division Lobby.

Sir H. d'Avigdor-Goldsmid: I am rather sad about the Minister of State, because, although he has not been long in the Treasury, he seems to have picked


up all the jargon. For them, almost any action is action of tax avoidance and if any of us fell down dead, we should, in the eyes of the Treasury, have been indulging in tax avoidance. We are sad to see the Minister of State with his arm in a sling, but if he were so incapacitated as no longer to be able to do his duties, he would be indulging, in the eyes of his Department, in an act of tax avoidance. It is about time that the hon. and learned Gentleman and his colleagues recognised the facts of life. There are many decent, generous people who want to give money away, who want to divest themselves of their assets for the benefit of charities.
I should like to echo what my hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) said about the Minister's scathing attitude to private charitable trusts. What is a private charitable trust? It is a trust set up to distribute funds to recognised charities, and if it is not a charitable trust it does not enjoy any of the advantages of a charitable trust. No one knows that better than the Minister's colleagues. Probably the Minister of State knows it himself. His idea that the formation of private charitable trusts is itself an act of tax avoidance is something of which he must disabuse himself, because it does not stand up to the general conceptions of the people.
To think that any action anyone takes which does not actually involve payment of tax is itself an act of tax avoidance only shows that, although the hon. and learned Gentleman has not been long at the Treasury—I hope that it was not as a result of a wrestle with his advisers that he sustained his injury—he must have got the language deeply embedded in him. I am glad to accept the invitation to vote for the new Clause, really to show that here is a very intelligent hon. and learned Member who yet speaks not in the language of Mr. Gladstone, but in language tucked away in the Treasury files for about 100 years or more.

Mr. John Smith: I have no wish to grill the Minister of State when he has his arm in a sling, but he has not only distinguished between types of charity —a dangerous road on which to set out; he has also invented a new meaning for tax avoidance. Most of us under-

stand by tax avoidance a state of affairs where, instead of the Treasury getting the tax, it remains in the hands of the person who would otherwise have paid it.
I would like to know how it is possible to avoid tax—to make money—by giving money away. If, on £1 worth of securities, Capital Gains Tax of 1s. is payable, the normal meaning of tax avoidance is that some transaction is entered into by which that 1s. remains in the hands of the person who would otherwise have paid it in tax. But if the money is going to charity, the person pays not 1s., but £1. This surely cannot be called tax avoidance.
We have here, as we always have, complicated and restrictive legislation defended on the ground that, if it did not exist, it would be possible for ill-intentioned people to make money. Surely we cannot extend that principle and forgo the beneficial effects of the proposal in the new Clause not in order to prevent a person retaining in his own hands the tax he might otherwise have paid, but to prevent him from giving away a much larger sum and to enable the Treasury, in effect, to collect the tax from a charity.

Mr. John M. Temple: I was a little disappointed by the reply of the Minister because he seemed to rest his case on two premises with which I am in complete disagreement. First, there was the analogy between this situation and Estate Duty. I refute that completely. The second premise was that gifts of assets other than cash are unusual. I remind him that most of our great charitable foundations, such as the Nuffield Foundation, have been founded on just these sort of gifts—gifts of shares in companies which the entrepreneur has built up and in which he takes great pride and has great pleasure in donating to charities.
If the hon. and learned Gentleman does not accept a new Clause of this nature, there will be a very real disincentive towards those very charitably minded people who have built up their own private empires and who desire, very rightly, at a certain juncture, that charity should benefit from some of the work they have carried out during their lifetime.
There is, however, another point with regard to land. The Minister of State seems to dismiss the idea that land could be donated for charitable purposes. As the years roll on, the Capital Gains Tax will become much heavier with regard to land, because land values constantly appreciate. In the nature of things, land is held over a long period of years. Therefore, if towards the end of his life a donor contemplates the giving away of land, which has been the basis of the fortunes of City livery companies throughout the centuries and the basis of many charitable foundations and educational trusts, he will be involved in enormous Capital Gains Tax liability and, therefore, there will be a disincentive to his giving away land.
I make these two points because we are looking upon the Capital Gains Tax as a tax which has operated for only a few years. I fear that in some form it will be with us for a long time, possibly in perpetuity, although, perhaps, not in exactly the form in which we have it today. Nevertheless, one would, I think, accept that it will be a continuing tax. There will, therefore, be this built-in disincentive. My experience has been that these charitable trusts have been based on donations of just the sort I have described. I am sure that the Minister of State would not want to put this disincentive against the desires of donors, but that is what he is doing.
I ask the Government seriously to make another statement on this matter—it deserves another statement from the Treasury Bench—and to say that they accept the principle that we are proposing. Even if they cannot accept it in this year's Bill, let them accept the principle in a more definite manner than we have heard so far.

Sir D. Glover: The Minister of State's reply was so unsatisfactory that, I think, everybody in the House would like to go into the Lobby against what he said. I would like to make three points. The first is that the hon. and learned Gentleman, if he represents his party correctly, is saying categorically that any private aid for the relief of distress is disapproved of by the party opposite and that whilst the Welfare State can look after those who fall by the wayside, for it to be done

on a private basis is something on which the party opposite disapprove.
Even if there is some loss of tax to the Treasury, if the money goes to a charity to do a great deal of good with which the State would otherwise have to deal, I cannot see how it can be labelled as tax avoidance, because the person giving the money to the charity gets no benefit from it. The hon. and learned Member should remove the view which he has given to the House, otherwise his party will be regarded for all time as one which disapproves of all forms of private charity.
Secondly, whether inadvertently or not, the hon. and learned Gentleman gave me the strong impression that he thought, presumably representing his party, that there was something slightly unsavoury in what he referred to as a private charitable trust. He did not, perhaps, put it into words, but he left the strong impression on me that his party, the Government, do not approve of private charitable trusts.
I strongly support what my hon. Friend the Member for the City of Chester (Mr. Temple) said. Some private charitable trusts have done more good to research in medicine and many other ways than almost any other charitable activity that we have seen over the last 50 years.
If this is now to have the label of sin attached to it, it will be a tremendous disincentive to people who have been fortunate in the line of battle and accumulated wealth—and they have to be very clever to have accumulated anything in the light of the State's attack on wealth to make arrangements for the benefit of the nation.
It may be that Lord Nuffield would not have established the Nuffield Trust if life had been kinder to him and he had had a family, but he decided to use his wealth for very beneficial purposes for the nation as a whole. Surely no one will now say that there is an element of tax avoidance in what Lord Nuffield did in establishing the Nuffield Foundation? The Foundation has probably done as much good as £10 million, or whatever the sum was, ever expended for charitable or research purposes in this country, has done.
I hope that the right hon. and learned Gentleman will remove the impression


which he left very strongly in my mind that the Government think there is something disreputable in a private charitable trust.

Mr. John Hall: My hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), in the course of his interjection, described the reply given by the Minister of State as disappointing. I think, if I may say so, that that was a masterpiece of understatement. If there was a league table for unsatisfactory replies to points put forward by hon. Members on this side of the House, that last reply would come very near the top.
As far as I can understand, the real reason why the Minister was not prepared to accept this Clause—the validity of which I think he approved—was that very few people were likely to be affected by this, that injustice would be felt by only a few people and he could afford to

ignore them. Because so few people are affected, little pressure was likely to be placed on the Treasury, so let us ignore the fact that some people will suffer an injustice.

The hon. and learned Gentleman's argument seemed to me "we know very well that we can get away with this without great public pressure or indignation, so we are prepared to penalise charities just because only a few people suffer from injustice". I was about to use the word "disgusting" about this argument, but I will withdraw that, and say that I was amazed by the reply, which shows such a lack of understanding and sympathy that I hope my right hon. and hon. Friends will take this to a Division.

Question put, That the Clause be read a Second time:—

The House divided: Ayes 126, Noes 185.

Division No. 261.]
AYES
[11.3 p.m.


Alison, Michael (Barkston Ash)
Harrison, Col. Sir Harwood (Eye)
Pike, Miss Mervyn


Baker, Kenneth (Acton)
Harvey, Sir Arthur Vere
Pink, n. Bonner


Baker, W. H. K. (Banff)
Harvie Anderson, Miss
Pounder, Rafton


Balniel, Lord
Hawkins, Paul
Powell, Rt. Hn. J. Enoch


Bennett, Sir Frederic (Torquay)
Heseltine, Michael
Pym, Francis


Biffen, John
Higgins, Terence L.
Rawlinson, Rt. Hn. Sir Peter


Birch, Rt. Hn. Nigel
Hirst, Geoffrey
Rhys Williams, Sir Brandon


Black, Sir Cyril
Holland, Philip
Ridley, Hn. Nicholas


Boardman, Tom (Leicester, S.W.)
Hooson, Emlyn
Ridsdale, Julian


Brewis, John
Hornby, Richard
Rossi, Hugh (Hornsey)


Brinton, Sir Tatton
Hunt, John
Royle, Anthony


Bromley-Davcnport,Lt..Col.SlrWalter
Jenkin, Patrick (woodford)
Scott-Hopkins, James


Buchanan-Smith,Allck(Angus,N&amp;M)
Kaberry, Sir Donald
Sharpies, Richard


Bullus, Sir Eric
Kimball, Marcus
Shaw, Michael (Sc'b'gh &amp; Whitby)


Campbell, B. (Oldham, w.)
King, Evelyn (Dorset, S.)
Silvester, Frederick


Carlisle, Mark
Kirk, Peter 
Sinclair, Sir George


Chichester-Clark, R.




Clark, Henry
Knight, Mrs. Jill
Smith, Duley (W'wick &amp; L'mington)


Clegg, Walter
Lambton, Viscount
Smith, John (London &amp; W'minster)


Cooke, Robert
Langford-Holt, Sir John
Stainton, Keith


Cooper-Key, Sir Neill
Longden, Gilbert
Stoddart-Scott, Col. Sir M. (Ripon)


corfield, F. V.
Lubbock, Eric
Summers, Sir Spencer


Crowder, F. P.
Maclean, Sir Fitzroy
Taylor, Sir Charles (Eastbourne)


Dance James 
Macleod, Rt. Hn. lain
Taylor,Edward M.(G'gow,Cathcarr)


Davidson,James (Aberdeenshire, W.)
Maddan, Martin
Temple, John M.


d'Avigdor-Coldsmid, Sir Henry
Maginnls, John E.
Thatcher, Mrs. Margaret


Dean, Paul (Somerset, N.)
Marten, Neil
Turton, Rt. Hn. R. H.


Deedes, Rt. Hn. W. F. (Ashford)
Maude, Angus
van Straubenzee, W. R.


Eden, Sir John
Mawby, Ray
Waddington, D.


Elliot, Capt. Walter (Carshalton)
Maxwell-Hyslop, R. J.
Wainwright, Richard (Colne Valley)


Elliott,R.W.(N'c'tle-upon-Tyne,N.)
Maydon, Lt.-Cmdr. S. L. C.
Walker-Smith, Rt. Hn. Sir Derek


Emery, Peter
Mills, Peter (Torrington)
Wall, Patrick


Eyre, Reginald
More, Jasper
Walters, Dennis


Farr, John
Morgan, Geraint (Denbigh)
Ward, Dame Irene


Forteseue, Tim
Munro-Lucas-Tooth, Sir Hugh
Whitelaw, Rt. Hn. William


Glover, Sir Douglas
Murton, Oscar
Williams, Donald (Dudley)


Goodhart, Philip
Nabarro, Sir Gerald
Wilson, Ceoffrey (Truro)


Coodhew, Victor
Nicholls, Sir Harmar
Winstanley, Dr. M. P.


Gower, Raymond
Noble, Rt. Hn. Michael
Wolrige-Gordon, Patrick


Grieve, Percy
Onslow, Cranley
Younger, Hn. George


Griffiths, Eldon (Bury St. Edmunds)
Page, Graham (Crosby)



Gurden, Harold
Pardoe, John
TELLERS FOR THE AYES:


Hall, John (Wycombe)
Peel, John
Mr. Anthony Grant and


Hall-Davis, A. G. F.
Percival, lan
Mr. Bernard Weatherill.




NOES


Abse, Leo
Alldritt, Walter
Armstrong, Ernest


Albu, Austen
Anderson, Donald
Atkins, Ronald (Preston, N.)


Allaun, Frank (Salford, E.)
Archer, Peter
Atkinson, Norman (Tottenham)





Bacon, Rt. Hn. Alice
Harper, Joseph
Morris, Alfred (Wythenshawe)


Barnett, Joel
Harrison, Walter (Wakefield)
Morris, Charles R. (Openshaw)


Baxter, William
Hasedine, Norman
Moyle, Roland


Beaney, Alan
Hazell, Bert
Murray, Albert


Bence, Cyril
Heffer, Eric S.
Neal, Harold


Bidwell, Sydney
Henlg, Stanley
Norwood, Christopher


Bishop, E. S.
Herbison, Rt. Hn. Margaret
Oakes, Gordon


Blackburn, F.
Hooley, Frank
Ogden, Eric


Boardman, H. (Leigh)
Horner, John
O'Macley, Brian


Booth, Albert
Howell, Denis (Small Heath)
Oram, Albert E.


Boston, Terence
Howie, W.
Orme, Stanley


Braddock, Mrs. E. M.
Hoy, James
Oswald, Thomas


Bray, Dr. Jeremy
Huckfield, Leslie
Page, Derek (King's Lynn)


Brooks, Edwin
Hughes, Roy (Newport)
Palmer, Arthur


Brown, Hugh D. (G'gow, Provan)
Hunter, Adam
Parkyn, Brian (Bedford)


Brown,Bob(N'c'tle-upon-Tyne,W.)
Hynd, John
Pearson, Arthur (Pontypridd)


Brown, R. W. (Shoreditch &amp; F'bury)
Jackson, Colin (B'h'se &amp; Spenb'gh)
Pentland, Norman


Buchan, Norman
Jeger,Mrs.Lena(H'bn&amp;St.P'cras,S.)
Price, Christopher (Perry Barr)


Buchanan, Richard (G'gow, Sp'burn)
Johnson, Carol (Lewisham, S.)
Price, Thomas (Westhoughton)


Callaghan, Rt. Hn. James
Johnson, James (K'ston-on-Hull,W.)
Price, William (Rugby)


Cant, R. B.
Jones, J. Idwal (Wrexham)
Reynolds, Rt. Hn. G. W.


Carmichael, Neil
Kerr, Mrs. Anne (R'ter &amp; Chatham)
Roberts, Albert (Normanton)


Carter-Jones, Lewis
Kerr, Dr.. David (W'worth, Central)
Robertson, John (Paisley)


Chapman, Donald
Kerr, Russell (Feltham)
Robinson,Rt.Hn.Kenneth(St.P'c'as)


Coe, Denis
Lawson, George
Robinson, w. O. J. (Walth'stow, E.)


Coleman, Donald
Leadbitter, Ted
Rose, Paul


Crawshaw, Richard
Ledger, Ron
Ryan, John


Croseman, Rt. Hn. Richard
Lee, Rt. Hn. Frederick (Newton)
Sheldon, Robert


Cullen, Mrs. Alice
Lee, John (Reading)
Shore, Rt. Hn. Peter (Stepney)


Dalyell, Tam
Lestor Miss Joan
Short,Rt.Hn.Edward(N'c'tle-u-Tyne)


Davies, Ifor (Gower)
Lever, Harold (Cheetham)
Short,Mrs.Renée(W'hampton,N.E.)


Dell, Edmund
Lewis, Arthur (W. Ham, N.)
Silkin, Rt. Hn. John (Deptford)


Dempsey, James
Lewis Ron (Carlisle)
Silkin, Hn. S. C. (Dulwich)


Diamond, Rt Hn. John
Lomas Kenneth
Silverman, Julius


Dickens, James
Loughl'in Charles
Slater, Joseph


Doig, Peter
Luard, Evan
Small, William


Driberg, Tom
Lyons, Edward (Bradfort, E.)
Snow, Julian


Dunn, James A.
MeBride Neil
Spriggs, Leslie


Edelman, Maurice
McCann John
Taverne, Dick


Edwards, William (Merioneth)
MacColl, James
Tinn, James


Ellis, John
MacDernot, Niall
Urwin, T. W.


Evans, Albert (Islington, S.W.)
MCGUI re, Michael
Varley, Eric G.


Faulds, Andrew
MACKINTOSH, JOHN P.
Walker, Harold (Doncaster)


Fernyhough, E.
Maclennan, Robert
Watkins, David (Consett)


Fitch, Alan (Wigarr)

Watkins, Tudor (Brecon &amp; Radnor)


Fletcher, Ted (Darlington)
McMillan, Tom (Glasgow, C.)
Wellbeloved, James


Foley, Maurice
McNamara, J. Kevin
White, Mrs. Eirene


Foot, Michael (Ebbw Vale)
Mahon, Peter (Preston, S.)
Wilkins, W. A.


Forrester, John
Mahon, Simon (Bootle)
willey, Rt. Hn. Frederick


Fowler, Gerry
MaIlalieu,J.P.W.(Huddersfield,E.)
Williams, Alan (Swansea, W.)


Freeson, Reginald
Manuel, Archie
Williams, Alan Lee (Hornchurch)


Calpern, Sir Myer
Marks, Kenneth
Willis, Rt. Hn. George


Gardner, Tony
Marquand, David
Wilson, William (Coventry, S.)


Gray, Dr. Hugh (Yarmouth)
Maxwell, Robert
Winnick, David


Cregory, Arnold
Mendelson, J. J.
Yates, Victor


Grey, Charles (Durham)
Millan, Bruce



Griffiths, E. (Brightside)
Miller, Dr. M. S.
TELLERS FOR THE NOES:


Griffiths, Will (Exchange)
Milne, Edward (Blyth)
Mr. J. D. Concannon and


Hamilton, James (Bothwell)
Mitchell, R. C. (S'th'pton, Test)
Mr. Ioan L. Evans


Hamling, William
Molloy, William



Hannan, William
Morgan, Elystan (Cardiganshire)

Further consideration of the Bill, as amended, adjourned.—[Mr. Diamond.]

Bill, as amended (in the Standing Committee), to be further considered tomorrow.

ADJOURNMENT

Resolved, That this House do now adjourn.—[Mr. Concannon.]

Adjourned accordingly at thirteen minutes past Eleven o'clock.